Going Into Earnings, Is Apple Stock a Buy, a Sell, or Fairly Valued?

Apple is set to release its fiscal fourth-quarter 2025 earnings report on Oct. 30. Here’s Morningstar’s take on what to look for in Apple’s earnings and the outlook for its stock.

Key Morningstar Metrics for Apple

• Fair Value Estimate: $210.00
• Morningstar Rating: ★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

Apple Earnings Release Date

• Thursday, Oct. 30, after the close of trading

What to Watch for in Apple’s Q4 Earnings

• iPhone revenue is the single biggest data point. The September quarter includes the first 10 or so days of the new iPhone 17 family, making it the the first (partial) indicator of the success of the new lineup.
• Investors are still watching tariffs. Management guided to $1.1 billion in costs from tariffs, making for a 100-basis-point gross margin impact. This is still relatively minor, in our view, with most of Apple’s products exempt. We expect their exemption to continue.
• Apple stock is up more than 20% since last earnings, with momentum from good reports about early iPhone 17 adoption. We believe iPhone unit sales growth will need to accelerate to justify this valuation, and we see the stock as overvalued.

Fair Value Estimate for Apple Stock

With its 2-star rating, we believe Apple’s stock is overvalued compared with our long-term fair value estimate of $210 per share, which implies a fiscal 2025 price/earnings multiple of 28 times, a fiscal 2025 enterprise value/revenue multiple of 7 times, and a fiscal 2025 free cash flow yield of 4%. Against our estimate of fiscal 2026 earnings, our valuation implies a price/earnings multiple of 25 times.

Read more about Apple’s fair value estimate

Economic Moat Rating

We assign Apple a wide economic moat rating, stemming from customer switching costs, intangible assets, and a network effect. In our view, Apple’s iOS ecosystem extends far-reaching, sticky tendrils into customers’ wallets, entrenching customers with software capabilities and integration across disparate devices like the iPhone, Mac, iPad, Apple Watch, and more.

We also see immense design prowess at Apple, most impressively from deep integration of hardware, software, and semiconductors to create best-of-breed products. Finally, we see a virtuous cycle between Apple’s affluent customer base and vast ecosystem of developer partners. These moat sources elicit great profitability and returns on invested capital. In our view, Apple can leverage these moat sources into continued economic profits over the next 20 years, more likely than not.

Read more about Apple’s economic moat.

Financial Strength

We expect Apple to focus on using its immense cash flow to return capital to shareholders while increasing its net leverage over the medium term. Apple has a terrific balance sheet, with a net cash position of $50 billion as of September 2024. Management has laid out a goal to become cash neutral eventually, with no set timetable. We model it to hit this target near the end of the decade. Since announcing the goal in 2018, Apple has reduced its net cash position by more than half, from over $100 billion.

Read more about Apple’s financial strength.

Risk and Uncertainty

We assign Apple a Medium Uncertainty Rating. We see the firm’s greatest risk as its reliance on consumer spending, for which there is great competition and cyclicality. Apple is at constant risk of disruption, just as the iPhone disrupted BlackBerry in the budding smartphone market. The iPhone could be unseated by a new device or “superapp.” We view the firm defending against this risk, however, by introducing new form factors (like a watch and an augmented reality headset) and selling an ecosystem of software and services on top of hardware.

Read more about Apple’s risk and uncertainty.

AAPL Bulls Say

• Apple offers an expansive ecosystem of tightly integrated hardware, software, and services, which locks in customers and generates strong profitability.
• We like Apple’s move to in-house chip development, which we think has accelerated its product development and increased its differentiation.
• Apple has a stellar balance sheet and sends great amounts of cash flow back to shareholders.

AAPL Bears Say

• Apple is prone to consumer spending and preferences, which creates cyclicality and opens the firm up to disruption.
• Apple’s supply chain is highly concentrated in China and Taiwan, which opens up the firm to geopolitical risk. Attempts to diversify into other regions may pressure profitability or efficiency.
• Regulators have a keen eye on Apple, and recent regulations have chipped away at parts of Apple’s sticky ecosystem.

This article was compiled by Frank Lee.