Looking past the noise to the strong signal….
Apple reported robust revenue and earnings growth in its third quarter results on July 30th, but the stock opened the next day down 8%.
While investors seemed disappointed, I would argue that you shouldn’t be. Yes, there was some “noise” broadcasted during the call, but for me, it didn’t obscure the strong positive signal I heard.
Below I will provide the basic data communicated, the challenges the company is facing, and what I thought were the highlights and key points of the call.
The Stats
| Company Segment | Quarterly Revenue | Year-over -Year Quarterly Growth* | Gross Margin** | Sequential Quarterly change |
| Company-Wide | $109.4 billion | 16% | 50.1% | Up 0.8% |
| Products | $78.7 billion | 18% | 40.1% | Up 1.4% |
| Services | $30.7 billion | 12% | 73.5% | Down 1.1% |
| Product -iPhone | – | 22% | – | – |
| Product – Mac | – | 29% | – | – |
Source: Q3 2026 Apple Earnings Call (Apple Podcasts)
*Lower due to Foreign Currency translation (2-2.5%)
**Margin benefit from tariff rebates~(1-2%)
It is noteworthy that a company of Apple’s size and market dominance can grow at these double-digit rates. Yes, their largest businesses are the ones growing the fastest! If you are looking at all the growth rates and wondering why services isn’t growing faster, you are missing the point.
Even with their dominant position in cell phones, Tim Cook pointed out that the iPhone is gaining market share. Apple has over 2.5 billion total active devices. There are only 8 billion people on the planet!
Apple’s Challenges
The good news is: everything that is “wrong” with Apple can be fixed by what is “right” about Apple:
- Rising Memory Card Prices – Apple has incredible brand and pricing power, which should allow it to absorb and pass along increases (it did so in Q3)
- Foreign Exchange Headwinds – Apple is particularly vulnerable to the strengthening of the US dollar because it sources primarily in dollars, but 60% of its revenue is international, most of it in foreign currency. This is not a bug, it’s a feature – currencies fluctuate, and when the dollar is weakening, headwinds become tailwinds. The fact that Apple is a global company is the benefit.
- Supply Chain Constraints – Ironically, this problem is a result of the Company exceeding its forecasted demand for parts from suppliers to iPhone, Mac, and iPad
Highlights and Key Points
The Apple Upgrade Program (leasing through Klarna) should accelerate purchase cycle times and generate additional revenue. iPhones retain their value well on the secondary market, so trade-in values are attractive. This program is just now rolling out in US retail stores, with international to come. We should watch this space. Anything that accelerates the product purchase cycle would be hugely beneficial to Apple. How much acceleration is yet to be seen.
Siri AI
Tim Cook was effusive in his praise for Siri AI – he claimed that developer and review feedback has been “overwhelmingly positive”. Apple’s AI strategy is focused on personalization, privacy and integration within its product and service ecosystem. It could provide another revenue source if heavy AI users expand their iCloud computing capacity (similar to how Apple monetizes storage space for photos, etc.)
Siri AI is only available in the US right now – approval in China is in process, and company is working with the EU, which has stricter consumer protection and data laws than the United States
Operating Cashflow and Share Repurchase
Operating cashflow for the quarter was an impressive $33.4 billion (>30% of revenue), but what management did with the money is also noteworthy. All of it was “returned” to shareholders in the form of dividends ($5 billion) and stock repurchases ($28 billion), which reduce the number of shares outstanding and make the remaining shares more valuable. A company that spends 84% of its operating cashflow on repurchasing its company stock is telling you two things:
- Management thinks the stock is undervalued
- In a world where other large tech companies are spending hundreds of billions of dollars on AI and borrowing money to do it, Apple has no burning need for cash
So while not every topic during the call was positive and wonderful, the unmistakable strength of the Apple and iPhone franchise came shining through. High expectations and volatility in the stock price is to be expected, given its rich valuation (34x earnings), and we need to keep an eye out for size and market share limits that could slow growth. If you own Apple stock, personal risk tolerance and your broader financial goals should dictate how much you own.
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Important Disclaimers:
This material is for informational purposes only and should not be construed as investment, tax, or legal advice. Past performance is not indicative of future results. All investments involve risk, including loss of principal. Index performance is shown for illustrative purposes only and is not directly investable. Data sources include publicly available information believed to be reliable but not guaranteed.
