/Apple%20logo%20on%20store%20front%20by%20frantic00%20via%20iStock.jpg)
As he threatened during his election campaign, President Donald Trump has imposed tariffs on imports from Canada, Mexico, and China. The move will impact several U.S. companies, including General Motors (GM), Apple (AAPL), and retailers like Walmart (WMT).
Talking specifically of Apple, the company is already facing challenges in China where its sales fell in double digits during the December quarter. The tariffs and fears of an escalating U.S.-China trade war under the Trump administration are doing no good for the iPhone maker.
In this article, I’ll discuss whether AAPL stock is a buy despite Trump’s tariffs on imports from China and the company's sagging sales in the country. Let’s begin by looking at a brief snapshot of the company’s first-quarter earnings for its fiscal 2025.
Apple Reported Record Revenues in the December Quarter
Apple’s revenues rose 4% year-over-year to a record high of $124.3 billion in the fiscal first quarter of 2025 while its earnings per share (EPS) rose 10% to $2.40. The company hit record revenues in many regions including the Americas, and Europe, as well as a December quarter record in India which of late has emerged as a key market for the Cupertino-based company. Apple guided for revenues to rise “low to mid single digits” in the current quarter, which was also quite reassuring.
However, iPhone revenues trailed estimates in the quarter – and so did the company’s sales in China, its biggest market outside North America. Analysts posed the expected question over Trump’s tariffs during the earnings call, which Apple CEO Tim Cook dodged by saying the company is “monitoring the situation.”
How Serious Are China Headwinds for Apple?
While Apple’s revenues in the Greater China region, which includes Hong Kong, Taiwan, and the mainland, fell over 11% YOY in the December quarter, Cook said that half of the decline was due to a “change in channel inventory” during the quarter. Moreover, Apple currently does not offer its Apple Intelligence features in China, which is another reason iPhone sales were tepid in the region. However, there is also competitive pressure in the country, which Cook alluded to by describing China as the “most competitive market in the world.”
That said, things are not as bleak for Apple in China as the headline numbers might tell. Firstly, inventory replenishment should help buoy Apple’s sales in China in the current quarter. We also have the national subsidy scheme in China which should benefit Apple as many of its products are eligible for the subsidy.
As for the China tariffs, they are a headwind for Apple and will test the company’s ability to pass on higher prices to customers. Trump has already warned that Americans could feel “some pain” from the tariffs. While Apple has started diversifying its supply chain and has increased sourcing from India, China is still central to its supply chain.
Apple’s Services Business Is Doing Quite Well
While iPhone sales have sagged in China, Apple’s Services business is doing quite well. The segment’s revenues rose 14% last quarter and the company forecast revenues to rise by “low double digits” in the current quarter. The Services business has higher margins than products and posted a gross margin of 75% in the fiscal Q1 2025 – up 1 percentage point sequentially.
As the share of Services in Apple’s overall revenues has risen, the company’s gross margin also rose to a record high of 46.9% in the previous quarter. Rising contribution from the high-margin and relatively stable Services business is one reason Apple has seen a valuation rerating in recent years.
Also, Apple management’s commentary on iPhone 16 sales faring better in regions where Apple Intelligence is available was quite reassuring. As the company brings these AI-powered features to more countries and adds more languages and features, it should help propel iPhone sales.
AAPL Stock Forecast
Apple faced three downgrades in January ahead of its earnings report, and while there were some customary target price hikes following the “better than feared” fiscal Q1 earnings, none of these was significant barring perhaps TD Cowen, which raised its target price from $250 to $290.
Only 21 of the 36 analysts covering Apple rate it as a “Buy” or some equivalent which makes it the second worst-rated “Magnificent 7” stock after Tesla (TSLA). Apple’s mean target price is $242.79, which is just about 3% higher than the Jan. 31 closing price.
Apple Stock Does Not Still Look Attractive
Apple still trades at 31.4x its expected earnings over the next 12 months and while such multiples would still have looked reasonable if the macroeconomic environment was favorable, I see the risk-reward a bit unfavorable at current prices given the various headwinds Apple faces, particularly from Trump’s tariffs and market share loss in China. While Apple tends to outperform Big Tech peers during periods of economic uncertainty, I would still be on the sidelines on the stock given the uncertainty over the trade war.
