Apple’s Earnings Were a Pleasant Surprise. There’s More Work Ahead.

Apple reported better-than-expected third-quarter financial results on Thursday night. (TIMOTHY A. CLARY/AFP via Getty Images)

Apple’s third-quarter results and financial forecasts were a much needed positive for Wall Street after months of concerns about the stock. Still, risks remain.

Apple shares have dropped 19% this year as Wall Street has grappled with challenges ranging from tariffs to competition to a relative lack of progress on artificial intelligence. Investors wanted to see financial results that showed the company is still resilient in turbulent times.

Apple delivered. Earnings and revenue came in above expectations because sales of both iPhones and services were both much stronger than anticipated.

Investors have been worried about iPhone sales, the company’s biggest source of revenue, because Apple has pushed back the launch of Apple Intelligence, its widely anticipated generative AI software, which had been expected to give people a reason to buy new phones. Shifting tariff policies may well boost prices both for phones and other products, giving people a reason to delay big purchases.

Despite all of this, iPhone sales of $44.58 billion in the quarter beat estimates of $40.09 billion, and rose 13% from the prior year. Apple also said it expects September quarter revenue to grow at a “mid to high single digits” rate year over year, a call that is more upbeat than Wall Street expected.

Morningstar analyst William Kerwin wrote in a note on Friday that he believes the iPhone surprise was due “both to strong demand and
some tariff-related pull-in of future demand,” as consumers try to get ahead of potential price increases.

Some analysts think the strong iPhone results are an early sign of what will happen when Apple releases its AI system, along with highly anticipated hardware updates.

“We view the strength in iPhone units as encouraging especially as we head into a form factor change in Sep 2025 (and again in Sep 2026),” BofA Securities analyst Wamsi Mohan wrote on Thursday. “With increased focus on AI (incremental investments + potential M&A), Apple could set up well for a strong 2026 iPhone cycle.”

Mohan increased his target for Apple’s stock price to $240 from $235 and maintained a Buy rating on the shares. Apple stock was down 2.3% at $202.96 early Friday afternoon, while the S&P 500 was off 1.2% in response to disappointing news about the job market and President Donald Trump’s latest tariffs.

But Apple’s strong guidance is contingent on the trade landscape remaining the same. Thursday night, Trump announced new tariff rates on a handful of countries.

Another risk is Apple’s relationship with Google. A judge ruled last year that the search company is a monopoly, and is expected to soon lay out the remedies it will impose to address that. One possibility is that the judge could ban an agreement with Apple that makes Google the default search option on the company’s hardware.

J.P. Morgan analyst Doug Anmuth wrote in a research note on Monday that if that agreement is taken away, Apple could lose about $12.5 billion in revenue.

“Stock likely remains relatively range bound as we await the more impactful ruling on the Google revenue sharing deal,” Evercore ISI analyst Amit Daryanani wrote Thursday night. He rates Apple at Outperform with a $250 price target.

Write to Angela Palumbo at angela.palumbo@dowjones.com