Apple Q2 FY25 earnings preview: iPhone sales, services growth and US-China trade tensions in focus

Written by

Fabien Yip

Market Analyst

When is Apple reporting its second quarter earnings?

Apple will release its financial results for the quarter ending 31 March 2025 at 5.00pm (Eastern time) on Thursday 1 May.

Apple earnings expectations for Q2 FY25

In the previous earnings call, Apple guided for low- to mid-single-digit growth in overall revenue for the March quarter compared to the previous year. This aligns with analysts' consensus expectations of $94.2 billion in revenue, representing a 3.8% year-on-year increase.

The anticipated growth will likely be driven primarily by Apple's services and iPad segments, continuing the trend we've seen in recent quarters. Services revenue, which includes the App Store, iCloud, and advertising, has become increasingly important as hardware sales growth moderates.

Analysts expect net income to grow by 2.5% to $24.2 billion, reflecting the company's ability to maintain profitability even in a challenging market environment. Gross margin is projected to improve slightly from the previous year's 46.6% to 47.1%, showcasing Apple's continued pricing power and efficiency improvements. This margin resilience remains a key advantage for Apple compared to many smartphone competitors.

Figure 1: Financial results expectations

Key areas to watch in Apple's report

iPhone sales, which accounted for 56% of the company's revenue in Q1 FY25, will be closely scrutinised. The cyclical slowdown in smartphone sales could significantly impact Apple's top line, especially as consumers extend their upgrade cycles.

Services, now the second-largest revenue contributor, is expected to grow by approximately 12% year-on-year. The sustainability of this growth trajectory is crucial, particularly as Apple seeks to offset slower hardware sales with recurring revenue streams.

Management's guidance on navigating US-China trade tensions will be essential. Investors will look for clarity on whether Apple plans to absorb tariff costs, renegotiate with suppliers, adjust pricing, or further diversify its supply chain beyond China to locations like India and Vietnam. If Apple decides to adjust product pricing, a key question is whether these increases will be targeted specifically at US consumers or distributed across global customers.

From a geographic perspective, North American customers contributed 42% of Apple's revenue in the previous quarter. This heavy reliance on US clients makes the company particularly sensitive to US trade policies and domestic economic conditions.

Greater China, albeit a smaller revenue contributor, is expected to revert to positive growth after multiple quarters of negative growth since 2023. This potential turnaround in the Chinese market will be closely watched as a signal of Apple's resilience in this strategic region.

Figure 2: Apple revenue breakdown by business segment and geography

The impact of trade policy uncertainties

Apple faces substantial risks from trade policy uncertainty, with approximately 90% of iPhones assembled in China while the US remains its largest market by revenue. This exposure creates significant vulnerability to tariff decisions and trade restrictions.

In addition to product assembly, Apple heavily relies on Chinese suppliers for critical components such as speakers and camera lenses. This dependency on the Chinese supply chain for both manufacturing and parts procurement compounds the company's exposure to trade tensions.

Although electronics and smartphones received temporary exclusion from high reciprocal tariffs, the Trump administration has indicated these products will be included in upcoming semiconductor sectoral tariffs. Implementation could occur within one to two months, potentially disrupting Apple's cost structure.

Beyond tariffs, export restrictions on high-performance chips amid rising US-China tensions could disrupt supply chains. Apple's reliance on advanced semiconductors for its devices makes it particularly vulnerable to such measures.

To mitigate these risks, Apple has been diversifying production to locations such as India, Vietnam, and Malaysia. However, this transition requires time, and these alternative manufacturing bases may eventually face their own trade policy challenges.

Apple's AI strategy and innovation roadmap

Apple's progress on artificial intelligence products will be a focal point for investors and analysts. In March, the company indefinitely postponed the launch of AI features for Siri, raising concerns about Apple's position in the AI race compared to competitors like Google and Microsoft.

The company has steadily increased its research and development (R&D) spending to safeguard its leadership in product innovation. In the previous quarter, Apple allocated 7% of its total net sales to R&D, highlighting its commitment to technological advancement despite supply chain disruptions from ongoing trade tensions.

Investors will seek updates on Apple's AI integration roadmap across its product ecosystem. The company faces pressure to demonstrate compelling AI applications that enhance user experience while maintaining its trademark focus on privacy and security.

Analyst outlook and target price considerations

Analyst sentiment on Apple has declined in recent months. According to LSEG Data & Analytics, out of 49 analysts covering the stock, 12 maintain a "strong buy" recommendation, 21 rate it as a "buy," 13 as "hold," and three assign a "sell" rating.

TipRanks data shows a neutral sentiment, with "buy" ratings roughly balanced by "hold" and "sell" ratings. This mixed outlook reflects uncertainties surrounding Apple's growth trajectory amid trade tensions and AI competition.

The average one-year price target stands at $237.71, down 5% from previous year-end target but still suggesting a potential 19% increase from the 22 April 2025 closing price of $199.74.

Figure 3: Wall street analyst estimates

Figure 4: TipRanks smart score charts

When comparing Apple to its "Magnificent Seven" peers, it ranks fourth in year-to-date returns. The company's valuation as indicated by its price-to-earnings (P/E) ratio has become more reasonable following recent pullbacks, though not as attractive as peers like Alphabet and Meta when considering trade policy exposure.

Figure 5: Valuation and performance of Magnificent Seven

Apple share price technical analysis

Apple's share price has experienced a significant pullback this year, falling as much as 35% from its record high of $260.10 reached on 26 December 2024. Despite some recovery, the stock remains 23% below its peak.

Technical analysis shows that Apple's share price broke its uptrend in late February and has been trading below its 200-day simple moving average (SMA) since then. This pattern typically signals a bearish trend, with the 200-day SMA now acting as resistance.

A better-than-expected earnings report could drive the share price toward the $225 level, which aligns with recent peaks. If the price sustains above the 200-day SMA, this would indicate a potential reversal in trend and renewed bullish momentum.

Conversely, disappointing results could see the stock testing support near the recent low of $169. This level may prove crucial for determining whether Apple shares stabilise or continue their downward trajectory in the coming months.

Figure 6: Apple daily price chart