Apple (AAPL) delivered solid second-quarter earnings — but you wouldn’t exactly know it from the mood on Wall Street. Despite Apple beating expectations for the fifth straight quarter, investors were less focused on what the company just reported and more on what lies ahead: a turbulent macroeconomic horizon, slowing margins, and a looming $900 million tariff hit.
The elephant in the earnings room wasn’t just softer services revenue or a continued sales slump in China. It was the growing threat of geopolitical fallout — particularly President Donald Trump’s escalating tariff regime, which is forcing Apple into a major supply chain reshuffle.
But amid the rising uncertainty, Apple still showed why it’s built to weather global storms.
The company reported $95.4 billion in revenue on Thursday after the bell — up 5% year-over-year — and earnings of $1.65 per share, up 8%, riding strong demand in the U.S. and parts of Asia. Those figures beat expectations of $94.2 billion in revenue and $1.60 EPS.
Still, the glow was tempered. Services underdelivered, revenue from China remained in decline, and product margins slipped. And with what Wedbush analysts have dubbed the “tariff tornado” circling just ahead of Apple’s expected iPhone 17 launch, the path forward looks anything but simple.
Apple stock was down about 3% in midday trading on Friday. The shares have fallen about 15% so far this year amid the broader selloff in tech stocks.
Here’s what to know.
Tariffs are poised to hit Apple — hard
The biggest concern for Apple is one that’s looming: tariffs.
For the most part, the only thing analysts wanted to ask CEO Tim Cook about on the earnings call was the company’s tariff-related exposure. He said the company saw a “limited impact” from Trump’s levies in the second quarter — but things could get much worse in the third quarter.
Apple, he said, could see an estimated $900 million added to its costs for next quarter — if current global tariff rates, policies, and applications remain the same.
At the moment, there’s a 145% tariff on Chinese imports. Cook said Apple mitigated second-quarter costs by moving a large chunk of its supply chain to India, where 50% of iPhones for the U.S. are currently coming from. Cook said the majority of iPhones for the June quarter will continue to come from India. Vietnam, meanwhile, will be the country of origin for almost all of Apple’s iPads, Macs, Apple Watches, and AirPods sold in the U.S. China will remain the primary country of origin for most non-U.S. product sales.
This strategic pivot could minimize the tariffs’ impact, but analysts remain divided on just how effective the pivot away from China might be. Jefferies analysts estimated that if tariffs go up by 1 percentage point and Apple doesn’t raise product prices, its pre-tax profits for the year could fall by about 1.5 percentage points.
Wedbush analysts, however, raised their price target on Apple stock, citing Apple’s apparent mastery over a highly complex supply chain shift. In a note, Wedbush Securities analyst Dan Ives emphasized that Apple’s pivot to India and Vietnam gives the company enough runway to avoid major disruption ahead of the iPhone 17 launch in September, calling India the “life raft” of Apple’s global manufacturing strategy.
Sales in China are better — but still continue to decline
Chinese tariffs weren’t the only China-related headwind Apple saw: Revenue in the country continued to decline, by 2% in the second quarter. However, it was a marked improvement from the previous quarter, which saw a substantial 11% drop.
The takeaway: A 2% decline isn’t great, but it could have been much worse.
This stabilization was partly driven by Chinese government subsidies for consumer electronics, which helped support demand for devices such as the iPhone 16e and the newest iPad Air. Jefferies noted these subsidies likely cushioned Apple’s revenue slide in China, especially as the recent iPhone 16e targeted price-sensitive buyers.
Cook pointed out that, when factoring out the foreign exchange headwinds, Apple’s revenue in the country was effectively flat.
While the Chinese market remains challenging, the worst may be behind Apple in the region. Still, Chinese nationalism and consumer preferences for locally made devices remain key risks, especially with the heightened geopolitical tensions.
Apple’s golden goose laid a smaller egg
For years, the Services segment — which includes the App Store, iCloud, Apple Music, and Apple TV+, AppleCare — has been Apple’s crown jewel. But in the second quarter, that glow dimmed, if only slightly.
Services revenue still achieved an all-time revenue record, growing 12% compared with the previous year, despite over 2 percentage points of foreign exchange headwinds. But that was below Wall Street’s expectations. Revenue came in at $26.6 billion, below the $26.7 billion analysts anticipated. Partially as a result of those lackluster figures, Apple stock dipped in after-hours trading on Thursday and continued to slump Friday.
Jefferies noted that Services drove 60% of Apple’s total revenue growth in the second quarter, supported by a record-high gross margin of 75.7%. That strength offset weaker hardware margins. But concerns persist.
Behind the scenes, several headwinds were at play. Regulatory scrutiny of the App Store’s fees had begun to impact margins. Subscription fatigue was spreading, as consumers reconsidered monthly commitments in the face of global economic pressures. And Apple’s push into original content and sports streaming, while strategic, hadn’t yet yielded blockbuster financial returns.
“We do expect foreign exchange in the June quarter to improve sequentially, however, we are expecting it to be a slight headwind to revenue on a year-on-year basis,” Apple CFO Kevan Parekh said. “With respect to Services, given the uncertainty we see from several factors, we aren’t providing the category level of color today.”
For now, the golden goose is still laying eggs — but they’re leading some to wonder if they’re as golden as they used to be.
Hardware sales continue to boost bottom line
Apple’s second-quarter earnings were buoyed by American consumers rushing to buy Apple products before Trump’s far-reaching tariffs could really take hold. The company also released the iPhone 16e during its second quarter, a lower-end phone that comes with limited AI features.
On the whole, Apple beat expectations across much of its hardware department, reporting iPhone revenue of $46.84 billion (versus $45.84 billion estimated), Mac revenue of $7.95 billion (versus $7.77 billion estimated), and iPad revenue of $6.4 billion (versus $6.20 billion estimated).
CFO Parekh cited a Kantar study that said, during the March quarter, the iPhone was a top-selling model in the U.S., urban China, the U.K., Germany, Australia, and Japan. He added, “We continue to see high levels of customer satisfaction in the U.S. at 97%, as measured by 451 Research.”
But Jeffries analysts noted that iPhone gross margins fell by 1 percentage point year over year to 38.3%, the lowest in the past five years for a March quarter. Overall product gross margin dropped 0.7 percentage point to below 36%, also the lowest number for a March quarter in the past five years.
Parekh attributed the margin compression to mix, foreign exchange, and a seasonal loss of leverage,” but Jefferies believes “faster builds and speedy March shipments” may also be to blame.
Lawsuits are still looming
Cook said he “strongly disagrees with” a judge’s antitrust ruling that Apple had violated a previous injunction related to its App Store policies. A California District Court ruled against Apple in its continuing litigation with Epic Games, ordering Apple to allow developers to link to external payment systems — an injunction that could hit App Store commission revenues.
“We’ve complied with the court’s order, and we’re gonna appeal,” Cook said.
The European Commission is also investigating Apple’s practices around Apple Pay and third-party app distribution.
Cook added that Apple’s antitrust lawsuit — and monopoly suits Google (GOOGL) is facing — cast a specter over the tech industry. Responding to a question on the earnings call about the mounting legal risk, Cook said, “We’re monitoring these closely, but as you point out, there’s risk associated with them and the the outcome is unclear.”