Executive Summary
We maintain our Buy rating on Apple (AAPL) with a 12-month price target of $275, representing 27.6% upside from current levels. Apple's Q3 2025 results demonstrated resilience in Services growth and continued strength in the iPhone 16 cycle, though Mac and iPad sales remain under pressure. The company's expanding gross margins and capital return program provide additional support to our positive thesis.
Key investment highlights include:
- Record Services revenue of $24.8B, up 18% YoY
- iPhone installed base reaches 1.5B devices globally
- Gross margin expands 210bps YoY to 46.8%
- $90B returned to shareholders through buybacks and dividends
- AI integration across product ecosystem driving upgrade cycle
Company Overview
Apple Inc. designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories worldwide. The company's product portfolio includes the iPhone, Mac, iPad, Apple Watch, and AirPods. Apple also provides digital content stores and streaming services, including the App Store, Apple Music, Apple TV+, and iCloud. With a strong ecosystem of hardware, software, and services, Apple has built one of the most valuable and recognizable brands globally.
Financial Highlights (Q3 2025)
Investment Thesis
Our Buy rating is predicated on five key pillars:
- Services Growth: The Services business continues to be the growth engine, with 18% YoY growth and expanding margins. We expect this segment to approach $100B in annual revenue by FY26.
- iPhone 16 Supercycle: The iPhone 16's AI capabilities and design refresh are driving stronger-than-expected upgrade rates, particularly in China and emerging markets.
- Gross Margin Expansion: Favorable mix shift toward Services and higher-margin products, combined with cost discipline, supports our 47-48% gross margin outlook for FY25.
- Capital Return: Apple returned $90B to shareholders in the last 12 months and has $66B remaining in its current buyback authorization, providing downside support.
- AI Leadership: On-device AI features and the rumored Apple Intelligence platform position the company well for the next computing cycle.
Financial Analysis
Revenue by Segment
Source: Company reports, MarketDrafts Research estimates. Figures in USD billions.
| Segment | Revenue (B) | YoY Change | % of Total |
|---|---|---|---|
| iPhone | $51.2 | +5.8% | 50.1% |
| Services | $24.8 | +18.0% | 24.3% |
| Mac | $7.8 | -3.7% | 7.6% |
| iPad | $6.2 | -8.8% | 6.1% |
| Wearables, Home & Accessories | $9.1 | +4.6% | 8.9% |
| Total | $102.1 | +8.2% | 100% |
Key Financial Metrics
Valuation
We value Apple using a sum-of-the-parts (SOTP) analysis, applying appropriate multiples to each business segment. Our $275 price target implies a 27.6% upside from current levels.
Sum-of-the-Parts Valuation
| Segment | FY25E Revenue ($B) | Multiple | Implied Value ($B) | Per Share |
|---|---|---|---|---|
| iPhone | 215.0 | 6.5x | 1,397.5 | 90.42 |
| Services | 98.5 | 12.0x | 1,182.0 | 76.50 |
| Mac | 32.8 | 5.0x | 164.0 | 10.62 |
| iPad | 25.5 | 4.5x | 114.8 | 7.43 |
| Wearables, Home & Accessories | 38.2 | 5.5x | 210.1 | 13.60 |
| Enterprise Value | 3,068.4 | 198.57 | ||
| Net Cash | 152.3 | 9.86 | ||
| Equity Value | 3,220.7 | 208.43 | ||
| AI/Other Growth Initiatives | 1,029.0 | 66.57 | ||
| Total Equity Value | 4,249.7 | 275.00 |
Valuation Multiples
Key Risks
Regulatory Scrutiny
Increasing antitrust investigations and potential App Store regulation could impact Services revenue growth and profitability.
Supply Chain Disruptions
Geopolitical tensions and trade restrictions could disrupt Apple's complex global supply chain, particularly in China.
Macroeconomic Headwinds
Potential economic slowdown could impact consumer discretionary spending on Apple's premium products.
Competition
While competition remains intense, Apple's ecosystem and brand loyalty provide significant competitive advantages.
Investment Recommendation
We reiterate our Buy rating on Apple with a 12-month price target of $275. Our positive view is based on:
- Sustainable Services growth with expanding margins
- Strong iPhone 16 cycle with AI differentiation
- Robust capital return program
- Attractive valuation relative to growth
- Potential upside from AI and AR/VR initiatives
We recommend accumulating shares on any market weakness and would become more aggressive below $200 per share.
Disclosures
This report is for informational purposes only and does not constitute investment advice or a recommendation to buy, sell, or hold any security. The information contained herein is based on sources believed to be reliable but is not guaranteed as to accuracy or completeness. The opinions expressed are subject to change without notice. MarketDrafts and its affiliates may have positions in the securities mentioned in this report. Please see our full disclosures and disclaimers on our website.