iPhone and Services Strength Will Lift Apple’s Q3 Earnings, But AAPL Stock Still Warrants Caution

Apple (AAPL) will report fiscal third-quarter 2026 results on July 30. Strong iPhone demand and continued momentum in its high-margin Services segment are expected to drive solid revenue and earnings growth. However, rising component costs led by surging memory prices and Apple's premium valuation could cap AAPL stock’s upside potential.

Apple has consistently posted healthy revenue growth while expanding profitability over the past several quarters. Notably, it hasn’t seen much impact from higher memory costs on its margins in recent quarters as Apple benefited from lower-cost inventory purchased earlier, although that tailwind is fading.

Management warned during the Q2 earnings call that higher memory prices are expected to pressure its margins in the June quarter, with the headwind likely to persist in the quarters ahead. If component costs continue climbing faster than Apple can offset them through pricing or supply-chain efficiencies, margin expansion could slow despite resilient demand.

Meanwhile, AAPL stock has increased about 26% over the past three months, pushing shares close to record highs as investors bet on sustained iPhone strength. That strong run has also lifted the stock's valuation, leaving less room for disappointment heading into earnings.

iPhone and Services to Power Apple Q3 Growth

Apple appears well-positioned to deliver another strong quarterly performance despite ongoing supply-chain constraints. Robust iPhone demand, ongoing momentum in the Services business, and increased pricing are likely to drive its top and bottom lines.

Apple reported Q2 revenue of $111.2 billion, an increase of 17% year-over-year (YOY). iPhone remained Apple's biggest growth driver, generating $57 billion in revenue, up 22% from a year earlier.

Momentum appears to have carried into the June quarter. Demand for the iPhone 17 lineup remains healthy across key markets. Apple also achieved a record active installed base of iPhones, while the number of customers upgrading their devices reached a new March-quarter high. These trends indicate that the iPhone business should continue to support revenue growth in Q3.

Beyond hardware, the Services business continues to emerge as one of Apple's most valuable growth engines. Backed by an installed base of more than 2.5 billion active devices, the company is generating solid recurring revenue through subscriptions, App Store sales, Apple Pay, iCloud, and other digital services.

Services revenue climbed 16% YOY to $31 billion during the March quarter, with double-digit growth across most geographic markets and business categories. The segment is also an important contributor to Apple’s profitability.

Looking ahead to Q3, revenue is projected to increase between 14% and 17% YOY. Although iPad sales may face challenging comparisons following last year's product launches, continued strength in iPhone demand and Services revenue is expected to more than offset that headwind. Apple also expects Services growth to remain broadly in line with the March quarter.

On the earnings front, Wall Street expects Apple to report EPS of $1.88, representing 20% YOY growth. Strong demand and higher average selling prices are expected to cushion the bottom line.

Apple Stock Trades at a Premium

Apple is expected to deliver another strong quarterly performance, supported by its resilient business and consistent profitability. However, the market has already priced much of that optimism into AAPL stock. At the same time, rising memory costs could pressure margins, limiting its bottom-line growth rate.

Apple shares trade at 36.7 times forward earnings, which is high considering its earnings growth potential. Analysts expect EPS to grow by 9% in fiscal 2027. Unless Apple significantly outperforms expectations and provides an upbeat outlook, the company’s risk-reward doesn’t look attractive.

Conclusion

Apple is well-positioned to deliver a strong Q3, with healthy iPhone demand and continued Services momentum likely to support solid revenue and earnings growth. However, rising memory costs could begin weighing on margins, while the stock’s premium valuation leaves little room for execution missteps.

With much of the near-term optimism already reflected in the share price, AAPL stock warrants caution. Analysts are cautiously optimistic and maintain a consensus “Moderate Buy” rating on AAPL stock.