• Hardware growth is increasingly driven by premium mix, larger storage configurations and pricing power, rather than broad-based unit expansion.
• Services continues to strengthen Apple's earnings quality, monetising more than 2.5bn active devices and over one billion paid subscriptions at a much higher margin than Products.
• Rising memory and storage costs are likely to pressure Products's margin in the near term.
• We remain sceptical on the upcoming iPhone 18 cycle, as Apple still needs to prove that consumers can absorb further price increases through Pro models, storage upgrades and a richer premium mix.
• Greater China remains a key swing factor, as subsidy normalisation, stronger domestic competition and the absence of Apple Intelligence in mainland China could moderate growth after a strong 1H FY26.
• While Apple remains a high-quality consumer technology franchise, much of its structural quality is already reflected in the current valuation.
• With topline growth already maturing and execution risks still present around margin, China and Apple Intelligence, we initiate coverage of Apple with a HOLD rating.

Revenue Composition and Product Portfolio

While iPhone still accounts for around half of Apple’s revenue, the gross profit mix shows a very different picture. Services contribute around one-quarter of revenue but about 41% of group gross profit, reflecting the much higher margin profile of App Store, iCloud, AppleCare, Apple Pay, advertising, content and licensing. Over the years, this widening gap between revenue mix and gross profit mix has helped Apple defend its blended margin even when Products margin faces cost pressure. It also supports our view that Apple should not be valued purely as a hardware company, as a larger share of its earnings is now driven by recurring Services monetisation on top of the installed base.

Table 2: Apple Product and Services Portfolio.

FY2025 Performance

In FY25, Apple’s revenue grew 6.4% y/y, while gross profit increased 8.0% and EPS rose 10.7% to USD7.46, supported by Services growth, margin resilience and continued share buybacks. Meanwhile, Services revenue expanded 13.5% y/y, while iPhone revenue rose 4.2%, helped by premium mix expansion despite a mature smartphone market. Encouragingly, Mac returned to growth on a stronger product cycle and demand for higher-performance devices. Throughout the year, Apple also returned USD106bn to shareholders through buybacks and dividends, reinforcing the strength of its free cash flow profile.

Table 3: Apple latest financial year performance.

1H FY26 Performance: A Strong Setup With A Finite Shelf Life

The momentum continued into 1H FY26, with revenue growing 15.7% y/y in 1Q FY26 and 16.6% y/y in 2Q FY26. Greater China rebounded strongly, growing at solid double digits.

That said, we believe part of the first-half strength came from factors that are unlikely to repeat at the same magnitude. The iPhone 17 cycle was well received, China’s consumer electronics subsidy provided a meaningful tailwind, and the comparison base was favourable. As these supports fade into 2H FY26, we expect growth momentum to become more dependent on underlying replacement demand, pricing power and Services contribution. At the same time, rising memory and storage costs are likely to put more pressure on Products margin, with questions lies on whether cost pressure can be absorbed through pricing, product mix and supply-chain management.

Table 4: Apple 1H FY26 quarterly performance key highlights

Industry Overview

Stagnant smartphone volume growth

In 2026, the smartphone industry is facing a weaker unit-demand environment, with IDC forecasting global shipments to fall 13.9% y/y to 1.09bn units. At the same time, industry ASP is expected to rise to USD550 from USD450 in 2025, as higher memory and component costs are gradually passed through to end-device pricing. Unsurprisingly, we have seen this stagnant or slowing unit growth in smartphone industry over the past decade, where unit growth is becoming less useful as the main measure of market strength, while value capture, premium mix and pricing power are becoming more important.

This industry backdrop is relatively more favourable for Apple than for lower-end Android OEMs. Apple is not competing primarily for low-end volume share, and its hardware revenue is more sensitive to ASP, Pro mix, storage configuration and replacement quality. Even as global smartphone shipments decline, Apple’s CY2026 unit decline is expected to be less severe than the overall market, while iOS shipment share is expected to rise to 22%. As such, we believe the shift from volume share to value share should continue to support Apple, given its stronger positioning in the premium tier.

Figure 2: Global smartphone unit sales.

Wearables and Adjacent Devices

Beyond iPhone, Apple Watch, AirPods, iPad and Mac remain important in reinforcing Apple’s ecosystem stickiness. While smartwatch and TWS growth have normalised, these products increase device density per user and make the iPhone ecosystem harder to replace.

We believe the wearables business lies less in standalone hardware growth, but more in improving retention and widening the Services monetisation base. A larger multi-device user base should support repeat purchases, pricing power and higher usage of iCloud, AppleCare, App Store, payments and subscriptions over time.

Services

Within Services, smartphone OEMs are increasingly trying to monetise users beyond the hardware sale. For example, Samsung has expanded into Galaxy Store, Samsung Wallet, Samsung Health and SmartThings, while Xiaomi generates internet services revenue through advertising and value-added services. However, the economics remain uneven across OEMs, as most Android players still do not fully control the global platform layer, with app distribution, search, payments and developer economics largely tied to Google. Huawei is building its own HarmonyOS ecosystem, but the opportunity remains more China-centric for now.

We believe Apple is better positioned in this industry as its Services business is built directly on top of a global installed base that it controls through iOS, App Store, payments, user identity and device integration. Therefore, we believe Services is not just an additional revenue stream after the device sale, but a higher-margin monetisation layer within the Apple ecosystem, which allows Apple to sustain stronger Services margin and gross profit contribution than most consumer hardware peers, while reducing its reliance on hardware replacement cycles over time.

Investment Thesis

1.      Premium mix continue supporting hardware growth

Apple’s hardware business remains the largest driver of group revenue, but the growth driver has shifted. In a mature smartphone market with lengthening replacement cycles, we believe Apple’s hardware growth is increasingly driven by ASP, premium mix and replacement quality, rather than broad-based unit expansion. Moreover, demand at the higher pricing tiers remains resilient, supported by Pro models, larger storage configurations and a wider premium hardware portfolio. As such, ASP and mix should remain the key drivers behind Apple’s hardware revenue growth.

This can be seen in the shift in iPhone price mix, with the share of iPhone units priced above USD1,000 increased to 54% in FY 2025 from 26% in FY 2020, reflecting Apple’s stronger positioning in the premium segment. Meanwhile, the 1Q FY26 financial data shows that iPhone revenue grew 22% y/y, while shipments grew 9% y/y, suggesting that ASP was the larger contributor to growth. Apart from that, Apple also gained share across smartphone, PC, tablet and watch during the quarter, indicating that its premium hardware strategy remains intact across the portfolio.

Figure 3: Apple iPhone price tier mix evolution.

Apple’s ecosystem remains the key support behind this pricing structure. Consumers who already use iCloud, AirPods, Apple Watch, Apple Pay and App Store services have less incentive to switch to another platform, even when lower-priced alternatives are available. At the same time, financing plans reduce the upfront burden of higher device prices, allowing Apple to sustain higher ASPs without depending fully on headline unit growth.

Interestingly, Apple is also widening the entry points into its ecosystem. It can be seen through in new products launching such as the iPhone e, Apple Watch SE 3 and MacBook Neo help attract first-time or more price-sensitive users, while higher-end users continue to be monetised through Pro models, storage upgrades and Services. We believe this would give Apple two hardware levers. At the high end, premium models and larger storage configurations support ASP expansion. At the lower end, more accessible products help expand the installed base for future monetisation.

On top of that, we believe the expected foldable iPhone in the upcoming September launching could add another ASP driver, as foldables are likely to enter the market at a high price point, with Counterpoint forecasting foldable ASP to rise 18% in 2026, while 60% of foldable devices are expected to be priced above USD1,600. Thus, we believe a successful Apple launch should support premium mix and high-end replacement demand. Nevertheless, foldables remain a small portion of global smartphone shipments, while Samsung and Huawei’s experience suggests that foldables have so far been more effective in lifting ASP and strengthening premium positioning than driving broad-based demand. As such, we view the foldable iPhone as a mix-upgrade opportunity rather than a major volume acceleration driver.

Furthermore, we believe Apple Intelligence could be the second catalyst to support an AI-driven upgrade cycle, as a large portion (51.8%) of the installed iPhone base is still not fully AI-ready and the iPhone 18 lineup is expected to make AI-capable hardware the new baseline. However, we believe the conversion into actual upgrades still depends on execution, as personalised Siri has faced repeated delays and the iOS 27 rollout needs to prove real consumer usage rather than just stronger hardware positioning.

Figure 5: Foldable smartphone shipment share by price range.

Source: Counterpoint Research Foldable Smartphone Market Forecast, iFAST compilations. Data as of 25 June 2026.

Risks on a slower Greater China growth

Greater China remains the risk to the hardware outlook. While the region had seen a strong 1H FY26 performance, aided by the iPhone 17 demand, we believe pricing strategy and government subsidy policy (smart phone that priced below RMB 6,000) are playing a big part of it. With the rising memory cost pressure and the reduction in China consumer electronic subsidy amount, we expect China would not be able to continue pricing all the iPhone prices at below the subsidy pricing level, which might see growth to moderate as these tailwinds fade.

Beyond the cycle, the premium smartphone market in China has also become more competitive, with Huawei regaining share and local consumer preference turning more favourable toward domestic brands.

On top of that, Apple Intelligence remains unavailable in mainland China, limiting Apple’s ability to use AI features as a selling point in the iPhone 18 cycle. Any renewed government or consumer backlash against foreign technology brands could also weigh on sentiment, especially if domestic alternatives continue improving in hardware, software and ecosystem integration.

As such, while Apple has several hardware upside drivers, the strength of the next replacement cycle still depends largely on AI execution. Premium mix, higher ASP and lower ecosystem entry points should continue to support demand, but we expect growth to remain steady rather than supercycle-like.

Figure 6: Greater China quarterly revenue.

Figure 7: Greater China smartphone vendor share.

2.      Installed Base Drives Services Growth

While hardware remains Apple’s largest revenue contributor, Services has become an increasingly important driver of the group’s earnings profile as the segment monetises more than 2.5 billion active devices through App Store, iCloud, AppleCare, Apple Pay, advertising, content and licensing, with paid subscriptions already exceeding one billion. As more users stay within the ecosystem, we believe Services could continue to provide a recurring monetisation layer beyond the initial device sale, supporting both revenue visibility and margin quality.

The contribution is more visible at the gross profit level. In FY2025, Services accounted for 26.2% of Apple’s revenue but contributed 41.2% of group gross profit, with Services gross margin standing at 75.4%. This reinforces our view that a larger Services mix should continue to support Apple’s blended margin over time, and we believe the Services segment is becoming increasingly important in the current environment, as higher memory and component costs are putting pressure on hardware margins.

While services growth remains well supported by paid subscriptions, App Store activity, cloud services and advertising, moving forward, we believe the App Store should continue to benefit from rising consumer adoption of AI applications such as ChatGPT and Gemini, which could drive more subscription activity through Apple’s ecosystem.

At the same time, Apple Intelligence could strengthen the Services growth runway through iCloud+. While we remain sceptical on near-term AI execution and uncertain on the integration timeline, we believe faster execution and deeper Siri integration through Private Cloud Compute and AI-enabled Home Secure Video could increase demand for storage, privacy and higher-tier iCloud+ plans over time.

Over the years, Apple has faced stronger regulatory pressure over its Services monetisation model, particularly around App Store commissions and payment rules. Nevertheless, we do not expect these pressures to structurally derail the Services business, as Apple is gradually expanding beyond App Store commissions into other growth lines such as advertising, iCloud+, Apple Pay and AppleCare. As such, even if regulatory pressure limits part of Apple’s App Store monetisation, we believe Services should remain an important contributor to Apple’s earnings growth and could continue to scale with the installed base and help diversify Services revenue over time.

Figure 8: Gross margins mix.

3.      Gross margin likely to be pressured by memory

Memory and storage cost pressure is likely to be the key near-term drag on Apple’s Products margin. Unlike a normal component cycle, the current memory upcycle is tied to AI infrastructure demand, as suppliers allocate more capacity toward higher-margin AI-related products. This has tightened mobile DRAM and NAND supply, pushing memory costs higher across the smartphone industry. With memory players such as SK Hynix expecting the shortage to persist until at least 2030, we believe memory costs are unlikely to moderate meaningfully in the near term and could keep pressure elevated into FY27.

The impact is already visible across different smartphone price segments. Based on Counterpoint’s estimates, DRAM and NAND are expected to account for 23% and 18% of premium smartphone BoM, respectively, by 2Q 2026. Meanwhile, Bloomberg Intelligence estimates that Apple’s companywide Products gross margin could face 500 to 700 bps of pressure over the next 12 months without pricing action, while Mac and iPad could see larger pressure given their higher memory exposure.

That said, we do not view this as structural damage to Apple’s long-term margin profile. Over time, stronger pricing should encourage memory suppliers to expand capacity, which should eventually cap further cost increases. The near-term undersupply issue may not be solved quickly, but the cycle should become more manageable once new capacity comes through and supply-demand tightness normalises.

More importantly, Apple is better positioned than most consumer electronics players to manage this cost cycle. Its scale, supplier relationships and inventory management allow the company to secure components earlier and smooth part of the cost impact. In fact, we do not rule out the possibility of Apple expanding their memory chips suppliers to Chinese company such as CXMT. On top of that, Apple’s days inventory outstanding has remained above its longer-term average, suggesting some buffer from inventory pre-positioning, which should help cushion the margin impact compared with smaller OEMs with weaker bargaining power.

At the same time, compared with other smartphone players, we believe Apple has more room to pass through part of the cost increase as its premium positioning, ecosystem stickiness and stronger Pro mix allow pricing actions to be taken more selectively through higher-tier SKUs, storage upgrades and premium models, where price sensitivity is lower, in our view.

Overall, we expect memory cost inflation to weigh on Apple’s Products margin over the next few quarters. However, the impact should be partly cushioned by Apple’s pricing power, inventory management, supplier scale and supply chain flexibility. The memory cycle may last longer because of AI demand, but we do not expect it to permanently impair Apple’s Products margin profile.

Table 5: Apple Hardware Price Actions

Figure 11: Rising memories chips cost has yet to reflect in the COGS.

Figure 12: Apple’s Days of Inventory Outstanding.

Figure 13: Apple Products Gross Margin Trajectory

4.      Capital discipline remains supportive

Apple’s capital return remains one of the key supports to the company’s valuation multiple. Over the past decade, the company has consistently returned cash through share buybacks, with its diluted share count continuing to decline over the years. Together with the new USD100bn buyback authorisation and 4% dividend increase, this suggests that shareholder return remains intact, even after Apple removed its long-standing net cash neutral target.

While the removal of the net cash neutral target could raise questions on whether Apple may start building AI infrastructure to support its AI development, we view the move as giving the company greater flexibility to invest behind AI, R&D, supply chain diversification and potential acquisitions.

In order to build on Apple Intelligence, Private Cloud Compute and its broader AI roadmap, we expect Apple to maintain its policy of working closely with Google and Amazon’s AWS for cloud-computing needs, while we do not rule out the possibility of investing in private cloud data centres for its own AI inference workloads. Although a larger AI buildout is not our base case, even if Apple were to increase AI-related spending, we believe it would remain less capital intensive given its reliance on device-level processing, custom silicon and software integration.

Figure 14: Apple Diluted Share Count Compression

Valuation

We assign Apple a fair P/E of 29x, modestly above its 5-year forward P/E average of approximately 28x. The premium reflects the continued Services mix shift, Apple’s capital allocation discipline relative to hyperscaler peers with much higher capex intensity, its ongoing share buybacks, and the clearer AI roadmap that emerged from WWDC June 2026.

As such, we derive a FY2028 target price of USD311, implying approximately -1.3% upside. Thus, we initiate Apple with a HOLD rating.

Table 6: Valuation Summary

Investment Risks

1.      Apple Intelligence execution disappointment. Slower Siri improvement or weak AI feature adoption could reduce the replacement-cycle catalyst, limit iCloud+ monetisation upside and revive concerns that Apple is lagging in consumer AI.

2.      App Store regulatory pressure. Tighter rules on App Store commissions and payment systems could weigh on Services revenue and margin, especially given the high profitability of App Store monetisation.

3.      Tariffs and US-China supply chain disruption. While Apple has been diversifying production from China to India, iPhone assembly remains meaningfully China-linked. Any tariff escalation, export restriction or supply-chain disruption could pressure Products margin and shipment availability.

Key Takeaway

Apple remains a high-quality consumer technology franchise, with its investment case still anchored by premium hardware economics, Services monetisation and disciplined capital return. Hardware growth is increasingly driven by premium mix, larger storage configurations and pricing power, rather than broad-based unit expansion. Meanwhile, Services continues to strengthen Apple’s earnings quality, as the segment monetises more than 2.5bn active devices and over one billion paid subscriptions at a much higher margin than Products.

Nevertheless, we believe the current valuation has already reflected much of Apple’s structural quality. Rising memory and storage costs are likely to pressure Products margin in the near term, while the iPhone 18 cycle still needs to prove that higher pricing can be absorbed through Pro models, storage upgrades and premium mix. Greater China also remains a key swing factor, as subsidy normalisation, stronger domestic competition and the absence of Apple Intelligence in mainland China could moderate growth after a strong 1H FY26.

All in all, based on a fair P/E of 29x, we derive a target price of USD311, implying -1.3% upside. With topline growth already maturing and execution risks still present around margin, China and Apple Intelligence, we believe the current setup supports a HOLD rating.

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.