As at 3 July 2026

Executive Summary

Key highlights

In this report, we review the 2Q26 results released in April 2026:

Financial results at a glance:

• Revenue: Total revenue grew by 16.6% year-on-year (YoY) from $95.4 billion in 2Q25 to $111.2 billion. Growth was driven by strong sales led by the launch of the iPhone 17 series, MacBook Neo, and M4-powered iPad Air.

• Profitability: Gross margin expanded from 47.1% to 49.3% YoY, above the guided range of 46.5%-47.5%. Operating margin rose from 31% to 32%. Operating expenses advanced 18% YoY to about $15.4 billion, reflecting a 34% surge in research and development (R&D) expenditure to $11.4 billion.

• Geographic recovery: China revenue grew 28% YoY to $20.5 billion for the quarter, on track to surpass FY22 levels where revenues peaked at $74.2 billion per annum. China now makes up 18%-20% of revenue.

• Net income expanded by 19.4% YoY from $24.8 billion to $29.6 billion, resulting in a 2.4% margin expansion. EPS was elevated by 22% from $1.65 to $2.01, reflecting strong operating leverage.

• 3Q26 outlook: Management guided for revenue growth of 14%-17% and gross margins of 47.5%-48.5%. Memory costs are expected to have an ‘increasing impact’ on margins beyond 3Q26. Supply constraints are expected to affect the Mac mini, Mac Studio, and the new MacBook Neo due to memory chip availability. Operating expenses are projected at $18.8–$19.1 billion, up 23% YoY from $15.5 billion in 3Q25, reflecting continued investment in Apple Intelligence infrastructure. Management expects operating leverage to remain intact in the near term.

Analyst thesis

Our recommendation is based on:

• An ecosystem that retains customer loyalty and usage: Apple has built a deeply interconnected ecosystem in which devices and services compound switching costs over time. This creates behavioural lock-in, supporting above-industry replacement rates, strengthening hardware retention and supporting growth in services monetisation.

• A software business hiding inside a hardware company: Apple's services division, comprising the App Store, iCloud storage and Apple Pay, generates ~$31 billion in revenue per quarter, accounting for approximately 28% of total revenue, while contributing around 43% of total gross profit. This reflects a higher gross margin of 76.7% compared with 38.7% for hardware products. As services revenue continues to outpace hardware revenue, its contribution to gross profit is expected to increase further, providing a structural margin tailwind that is less dependent on higher device sales or cost efficiencies.

• A product cycle that could drive the next wave of upgrades: The September 2026 iPhone 18 launch presents a near-term catalyst, with expectations that a foldable device priced from ~$2 400 could support both average selling price (ASP) expansion and unit growth by attracting users who skipped the iPhone 16 and 17 upgrade cycles.

• Artificial intelligence (AI) upgrades that shift sentiment: Apple Intelligence, Apple’s AI-powered upgrade to Siri developed in partnership with Google's Gemini, enables Apple to deliver a smarter, more capable virtual assistant. Successful execution could shift market perception from Apple being viewed as a laggard in AI to a leader, providing a potential tailwind for the share price.