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Consumer tech behemoth and iPhone maker Apple’s (AAPL) dependence on China is well-known. According to research firm Evercore ISI, China accounts for about 80% of Apple’s production capacity. Unsurprisingly, following the imposition of punishing tariffs reaching as high as 145% under President Donald Trump, shares of the company have suffered a sharp correction, declining 20.4% year-to-date.
The company, in a recent filing, also acknowledged that it may need to raise product prices to combat any losses due to the tariffs, saying, “[tariffs] can require the Company to take various actions, including increasing the prices of its products and services.”
Although analysts have raised concerns that tariffs and resulting price hikes could weaken demand for Apple, I do not think this risk changes the long-term prospects for the company. Plus, Trump has currently exempted consumer electronics products from 125% tariffs on Chinese imports and is reportedly pursuing a trade deal with the country. The exemptions have benefitted AAPL in the short term, and a deal with China could remove major overhangs.
Here is why I am confident on AAPL no matter what happens.
Apple Has Solid Fundamentals
As has been the norm with Apple, the company’s results for the most recent quarter exceeded Street expectations. Total net sales stood at $95.4 billion, up 5.1% from the previous year, with an improvement in gross margins to 47.1% from 46.6% in the year-ago period. While the Products segment witnessed a modest yearly rise of just 2.7% to $68.7 billion, the rapidly growing Services business saw a jump of 11.6% on a year-over-year basis to $26.6 billion. Meanwhile, earnings went up by 7.8% from the prior year to $1.65 per share, ahead of the consensus estimate of $1.62 per share.
The company closed the quarter with a healthy cash balance of $28.2 billion. This was above its short-term debt levels of about $6 billion.
Also, in the quarter, as a means of rewarding its shareholders, Apple announced a massive $100 billion share buyback program accompanied by a 4% increase in its quarterly dividend to $0.26 per share.
Long-Term Growth Drivers Intact
In an earlier piece, I highlighted how the company’s continued innovation, pristine balance sheet, and proactive efforts to reduce its dependence on China bodes well for the company in the long term.
Moreover, supported by an active user base exceeding 2 billion devices, Apple firmly retains its status as the leading consumer technology firm globally, underpinned by both its expansive hardware ecosystem and a rapidly scaling services division. This services segment recently crossed the major milestone of reaching 1 billion paid subscriptions for the first time — a feat achieved through consistent double-digit annual growth in user numbers.
To reinforce its industry leadership, Apple unveiled a slate of new offerings in the previous quarter, including the iPhone 16e, targeted toward more budget-conscious consumers. It also introduced updated MacBook and iPad models, now equipped with M4 and M3 Ultra chips, optimized specifically for handling AI-based tasks. These fresh product releases have directly contributed to year-over-year revenue growth of 7% and 15% in the Mac and iPad categories, respectively. In addition, Apple appears to be taking a more aggressive stance in refreshing its iPhone portfolio, reportedly preparing ultra-thin and foldable variants — an ambitious departure from the company’s traditionally incremental approach.
What Are Analysts Saying About AAPL?
Overall, analysts have deemed Apple stock a “Moderate Buy,” with a mean target price of $232.78. This denotes upside potential of about 17% from current levels. Out of 37 analysts covering the stock, 18 have a “Strong Buy” rating, four have a “Moderate Buy” rating, 12 have a “Hold” rating, one has a “Moderate Sell” rating, and two have “Strong Sell” ratings.
