Despite challenges in China over the past two years, recent reports indicate a resurgence in iPhone sales during the third quarter. Analysts attribute this uptick to renewed consumer demand, possibly fueled by competitive pricing and the appeal of the iPhone 16 lineup, which debuted in late 2024. Jefferies recently upgraded Apple’s stock rating to “Hold” from “Underperform,” citing stronger-than-expected demand in China as a key driver for revenue and earnings growth. The firm projects an 8% revenue increase and a 10% earnings-per-share growth for the quarter, with iPhone sales playing a pivotal role. However, flat iPhone growth is anticipated in the second half of 2025, suggesting the current surge may be a short-term boost.
Services Continue to Shine
Apple’s Services segment, encompassing Apple Music, iCloud, Apple TV+, and the App Store, is expected to remain a powerhouse. Following a record-breaking $26.6 billion in Q2 2025, up 12% year-over-year, analysts forecast continued double-digit growth for Q3. This strength is driven by expanding subscription bases and the integration of Apple Intelligence, which enhances user experiences across apps like Siri and Photos. Services are a critical buffer against hardware sales fluctuations, and their consistent growth underscores Apple’s shift toward recurring revenue streams. However, Jefferies notes potential risks to Services revenue later in 2025, possibly due to regulatory pressures or market saturation.
Mac and iPad Performance
The Mac and iPad segments are also expected to contribute positively. In Q2 2025, Mac revenue grew 7% to $7.9 billion, bolstered by the M4 MacBook Air, while iPad revenue surged 15% to $6.4 billion, driven by the M4 iPad Pro and M2 iPad Air. Although Q3 saw no major product launches, the lingering momentum from these releases should support modest growth. The Mac segment benefits from Apple’s silicon advancements, which deliver superior performance for creative and professional tasks. iPads, meanwhile, continue to appeal to students and remote workers, with new software features in iPadOS 18 enhancing productivity.
Wearables Face Headwinds
The Wearables, Home, and Accessories category, which includes AirPods, Apple Watch, and HomePod, is likely to see another decline. In Q2 2025, this segment dropped 5% to $7.5 billion, reflecting softer demand for accessories amid economic uncertainties. Analysts expect a similar trend for Q3, as no significant updates were introduced during the quarter. The Apple Watch Series 10, launched in September 2024, had limited impact on Q3 results due to its late release. This category remains vulnerable to consumer spending shifts, particularly in markets affected by inflation or trade-related disruptions.
Navigating Trade Tensions and Tariffs
Apple’s Q3 performance comes against the backdrop of heightened U.S.-China trade tensions, particularly during the peak of tariff discussions. CEO Tim Cook noted in the Q2 earnings call that potential tariffs could add $900 million in costs for the June quarter, though Apple is mitigating this by sourcing half of its U.S.-bound iPhones from India and most other products from Vietnam. This strategic shift in supply chains highlights Apple’s adaptability, but uncertainties around future tariffs could influence guidance for Q4. Investors will be listening closely to Cook’s comments on how Apple plans to manage these geopolitical challenges while maintaining profitability.
Financial Outlook and Investor Expectations
Analysts project Apple’s Q3 revenue to align with or exceed the $85.8 billion recorded in Q3 2024, which marked a 5% year-over-year increase. Earnings per share are expected to hover around $1.42, compared to $1.40 last year. Apple’s gross margin, which reached 47.1% in Q2 2025, is likely to remain strong, supported by high-margin Services and efficient supply chain management. The company’s cash reserves, reported at $166.5 billion in Q2, provide a robust buffer for investments, including a planned $500 billion in U.S. spending over the next four years, covering facility expansions and a new Texas server factory.
Apple’s Q3 2025 earnings report will shed light on its ability to balance growth in key markets like China with challenges like tariffs and softening demand in certain categories. The conference call, scheduled for 5:00 p.m. ET on July 31, will offer further insights into Apple’s strategies for innovation and global expansion, setting the stage for its holiday quarter performance.
