As iPhone Demand Picks Up, Is Now the Time to Buy Apple Stock?

On Oct. 30, Apple (NASDAQ: AAPL) posted fiscal 2025 fourth-quarter results that featured solid revenue growth, and issued robust guidance based on management's expectations of strong iPhone sales this holiday season. The stock failed to gain much traction in the wake of the report, as it had already rallied strongly this fall from the 52-week lows it hit this summer. The stock is now up by about 7% year to date.

Let's take a closer look at Apple's results and prospects to see whether now is the time to buy the stock.

iPhone momentum

The iPhone continues to be the biggest source of revenue for Apple, accounting for about half its sales, and after a few years of sluggish sales, demand for its iconic smartphone is starting to pick up again. In its fiscal Q3, revenues jumped 13% as people rushed to upgrade their phones before tariffs made them more expensive. In the most recently completed quarter, which ended Sept. 27, Apple followed that up with 6% top-line growth to $49 billion. However, that did fall just short of analysts' consensus estimate of $50.2 billion, as the company ran into some supply constraints.

However, for its fiscal 2026 Q1, Apple projected that iPhone sales would grow by a double-digit percentage. While last quarter's revenue was powered by the iPhone 16, next quarter's forecast is based on strong initial uptake for the iPhone 17.

Mac sales, meanwhile, were strong during the quarter, jumping 13% year over year to $8.7 billion, driven by the MacBook Air and strong growth in emerging markets. That was just ahead of the $8.6 billion in sales that analysts had expected.

Sales of wearables and iPads, meanwhile, were both flattish for the quarter. Wearables sales were $9 billion, topping the $8.5 billion analyst consensus, while iPad sales came in at $6.95 billion, in line with expectations.

Total product segment sales increased by 5% to $73.7 billion. Product gross margin rose by 170 basis points, helped by mix, although the company got hit with $1.1 billion of tariff-related costs. It is expecting a $1.4 billion tariff hit next quarter.

In China, which has been a weak spot for the company, revenue fell by 4%. Management said that was due to iPhone constraints. It expects to see sales growth in China next quarter.

Apple's services segment -- which consists of its App Store, iCloud storage, Google Search revenue sharing, Apple Pay, Apple TV, and more -- continues to be the company's biggest growth driver. Services revenue climbed by 15% to $28.8 billion, topping the $28.2 billion analyst consensus. Growth was broad based, although the company called out strong App Pay revenue growth. The gross margin for the services segment came in at 75.3%, much higher (as usual) than its product segment margin.

Overall, Apple's revenue rose by 8% to $102.5 billion, while its earnings per share (EPS) climbed 13% to $1.85, surpassing analysts' consensus estimates for EPS of $1.77 on sales of $102.2 billion.

For the current quarter, which ends in December, Apple expects its revenue to grow by 10% to 12% year over year, with services revenue increasing at a similar rate to fiscal 2025.

Management says it plans to increase spending as it invests more in artificial intelligence (AI). However, unlike many big tech peers, its higher spending won't be for major quantities of graphics processing units (GPUs) and related capital expenditures to build out AI infrastructure. Instead, its investment will directly impact its operating expenses as it increases its research and development (R&D) budget. Now, it will increase its capex, but not to the extent of some other major tech companies, and its capex last fiscal year was only $12.7 billion, which is a drop in the bucket compared to what the big cloud computing infrastructure providers have been laying out. It's also worth noting for investors that capex is depreciated over time, so the impact that spending has on corporate earnings is different than R&D spending, which is recognized as an expense immediately.

Image source: Getty Images

Is Apple stock a buy?

Apple is starting to regain some momentum. Its services segment has remained a bright spot, and with much higher gross margins, its outsized growth has allowed for profitability growth to outpace revenue growth. Meanwhile, the long-awaited iPhone upgrade cycle finally seems to be taking hold as more buyers are looking to access the new models' AI features.

Turning to valuation, the stock trades at a forward price-to-earnings (P/E) ratio of around 32 based on analysts' estimates for fiscal 2026 (which will end in September). While it can be argued that Apple's earnings quality may be a little higher than some other tech giants that have heavy capex budgets, the valuation is still pretty steep for a company that's growing its revenue by single-digit percentages and its earnings by low-teens percentages.

As such, I'd prefer to wait on the sidelines for the stock to be available at a more attractive valuation. Apple is a great business; it's just a tad expensive at the moment.

Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.