To The Moon

-iPhone drives over-expected growth, innovation bottleneck and external risks suppress valuation upside space $Apple(AAPL)$ announced Q3 results, the overall performance exceeded market expectations, although the growth rate is still in the single digits, but revenue and EPS are at a new high, strong growth in iPhone and services is the main driver, AI and investment in innovation is still times the market cautious pricing. In spite of tariff costs and declines in certain product lines, a positive impact on the quarter, but the next challenge. Key Takeaways Q3 revenue was $94 billion, up 10% year-over-year, and EPS was $1.57, up 12% year-over-year, both June quarter records. Key drivers: iPhone revenue up 13% to $44.6B (vs. market estimate of $39.8B), Mac revenue up 15% to $8.0B, and services revenue up 13% to $27.4B.Contributed to core incremental growth; software services revenue of $2.74B (vs. $2.68B est.) maintained resilience. Growth across all geographies, AI and innovation investments set the stage for future growth, but tariff costs pose a challenge to gross margins. The company is seeing growth across all geographies, particularly in emerging markets such as India and the Middle East. Looking ahead to Q4 2025, Apple expects revenue to grow in the mid-to-high single digits, with service revenue growth expected to be 13%, subject to concerns about the impact of tariff costs on gross margins. MARKET FEEDBACK: Shares rose ~3% after hours following the earnings release (based on historical beat reaction), reflecting a short-term improvement in investor sentiment.However, intraday gains narrowed as concerns over tariff costs, competitive risks and slow AI progress persisted.Market interpretations focused on the sustainability of iPhone's "one-time pull" rather than a structural growth inflection point. The company ended the quarter with $133 billion in cash and available-for-sale securities and $31 billion in net cash, demonstrating strong financial flexibility.In addition, Apple demonstrated its commitment to shareholder value by returning $27 billion to shareholders during the quarter, including $3.9 billion in dividends and $21 billion in share repurchases. Investment Highlights The rise in iPhone volume and price hides structural weaknesses, and the sustainability of growth is doubtful. iPhone revenue exceeded expectations this quarter mainly due to volume and price double-driven: shipments +2.7% yoy (IDC industry growth rate is only low single-digit), the average price of +10.5% yoy (iPhone 16 series price increase + high-end emerging markets).Emerging markets (e.g. India) revenue growth of 20%, Apple through the localization strategy (e.g. in India to produce some of the iPhone) to reduce costs and increase penetration, double-digit growth in emerging markets to make up for the mature market's weakness (e.g. China is only +4.4% yoy) superimposed on the U.S. tariffs triggered by the policy of advance purchases (about $ 800M demand front) together to make a strong impact. In addition, tariff policy-induced advance purchase demand (temporary pull) US tariff adjustments led to a one-time surge in demand due to advance purchases. Product Line Performance Apple's product lines had a mixed performance in Q3 2025, and here are the numbers for each major product category: iPhone: Revenue reached $44.6 billion, up 13 percent year-over-year and a record for the June quarter.The number of upgraders reached an all-time high, demonstrating the effectiveness of Apple's upgrade strategy, such as new features and recall programs.This growth demonstrates consumer loyalty to the Apple ecosystem, even though Q3 is typically a "slow" time for iPhone sales. Mac: Revenue grew 15 percent to $8 billion, driven by the introduction of the M4 MacBook Air.This demonstrates Apple's growing competitiveness in the PC market, particularly its leadership in silicon chip technology. iPad: Revenue of $6.6 billion, down 8 percent year-over-year, likely due to a lack of major new product announcements, but still maintaining a high market share. Wearables, Home and Accessories: revenues of $7.4 billion, down 9% year-over-year, but a record number of Apple Watch upgraders in the June quarter, showing that there is still some demand for the category. Services: Revenue of $27.4 billion, up 13 percent year-over-year, was a record high, driven by double-digit growth in services such as the App Store, iCloud, Apple Music, and Apple TV+, which was nominated for 81 Emmy awards, further solidifying its competitiveness in the streaming market.Services segment gross margin of 75.6 percent provided a high margin growth engine, albeit down 10 basis points sequentially. Innovation and AI Investments AI and innovation was a key theme of Apple's Q3 earnings call.At WWDC 2025, Apple announced several AI updates, including features such as real-time translation and Workout Buddy, and has released more than 20 Apple Intelligence features.These initiatives are designed to enhance the user experience and protect user privacy through device-side AI computing and Private Cloud Compute.During the earnings call, CEO Tim Cook said that more personalized Siri features are planned for the future, which are expected to be released next year. Financial Metrics and Gross Margin Analysis Overall gross margin was 46.5%, a decrease of 60 basis points from the previous quarter, primarily driven by a 140 basis point decrease in product gross margin to 34.5%.Services gross margin of 75.6 percent declined 10 basis points from the prior year quarter, but remained high.Operating expenses were $15.5 billion, up 8 percent from the prior year, reflecting continued investment in research and development and market expansion. Tariffs and Cost Challenges Tariff costs pose a significant challenge to Apple's gross margin.In Q3 2025, tariff-related costs were $0.8 billion and are expected to increase to $1.1 billion in Q4 2025.These costs stem largely from geopolitical trade tensions, and Apple is struggling to absorb these additional costs, which could continue to impact its margins in the future. Valuation Outlook Looking ahead to the fourth quarter of 2025 (September quarter), Apple expects revenue to grow in the mid-to-high single digits, with service revenue growth expected to be similar to the June quarter at 13%.Gross margin is expected to be 46-47 percent, including $1.1 billion in tariff-related costs.Operating expenses are expected to be $15.6 billion to $15.8 billion.These outlooks show Apple's confidence in future growth, but also need to pay attention to the external economic environment and cost pressures. The current market capitalization of $3.1 trillion, corresponding to about 28 times PE in fiscal year 2025, corresponding to the level of the past five years is medium to low, the market is still jealous of the lagging progress of AI (Siri update delayed to 2026), weak hardware innovation (iPhone 16 did not break through) valuation pressure. Strategic investments and global expansion Apple announced several strategic investments in Q3, including a $500 million partnership with MP Materials focused on recycling rare-earth materials to support sustainability goals.In addition, Apple plans to invest $500 billion in the U.S. over the next four years for manufacturing, silicon chip engineering and AI research and development.This investment will not only stimulate economic growth, but also further solidify Apple's leadership in technology innovation. In terms of global expansion, Apple launched the Apple Store online in Saudi Arabia and plans to open new physical stores in the United Arab Emirates and India later this year.In addition, the company opened a new store in Osaka, Japan, moves that demonstrate Apple's continued commitment to expanding its global market share.