Apple (AAPL) delivered solid financials for the second quarter of its fiscal 2025. Its sales and earnings beat Wall Street’s expectations. However, concerns regarding future profitability due to tariffs, heightened competition from local brands in China, potential headwinds from AI delays, and valuation concerns have collectively pressured the stock.

One of the most pressing concerns weighing on Apple’s stock is escalating trade tensions between the U.S. and China. The company disclosed that the tariffs are expected to raise its costs by roughly $900 million in the upcoming June quarter.

Supply Chain Diversification in Focus

Apple has been accelerating its supply chain diversification to navigate the geopolitical headwinds. A growing number of iPhones sold in the U.S. are now manufactured in India, and the production of iPads, Macs, and other devices is increasingly shifting to Vietnam. While this strategy provides a partial hedge against tariffs, uncertainty around trade policies continues to create risk in the outlook. Plus, shifting production to India and China come with increased production costs. 

These rising costs raise questions about whether Apple can maintain its current level of profitability without raising prices, which could, in turn, affect consumer demand.

Apple’s AI Ambitions Face Delays

Apple’s artificial intelligence (AI) ambitions also face scrutiny. Apple’s efforts in AI — branded under “Apple Intelligence” — are beginning to take shape. The company is integrating generative AI capabilities across its ecosystem, bolstering the appeal of its products and contributing to the momentum behind iPhone sales. However, Apple acknowledged during its Q2 earnings call that some of the more advanced AI-powered Siri functionalities are still in development. Delays in rolling out these personalized features could weigh on Apple stock.

Apple’s Fundamentals Remain Intact

Despite these challenges, Apple’s fundamental strengths remain intact. The company posted Q2 revenue of $95.4 billion, a 5% year-over-year increase, even with unfavorable currency exchange rates. Apple also saw growth in nearly all markets, a reflection of the enduring appeal of its brand and the stickiness of its product ecosystem.

Hardware performance was steady across the board. iPhone revenue rose 2% to $46.8 billion, powered by the iPhone 16 lineup. iPhones’ active installed base hit a new global record, and upgrade rates showed strong double-digit growth. Mac revenue climbed 7% to $7.9 billion thanks to strong sales of the latest MacBook and Mac Mini models. iPad sales saw an even sharper jump, up 15% year-over-year to $6.4 billion, driven by the M3-powered iPad Air.

While the Wearables, Home, and Accessories segment dipped 5% compared to the same period last year, partly due to tough comparisons with last year’s launch of the Vision Pro and Watch Ultra 2, the Apple Watch installed base still reached an all-time high. Notably, more than half of Watch buyers during the quarter were new to the product, a positive sign for future growth.

Apple’s Services division continues to be a powerhouse. Revenue surged 12% to an all-time high of $26.6 billion. Growth was broad-based, spanning both developed and emerging markets. The number of paid subscriptions on Apple’s platform topped 1 billion, with double-digit growth in paid accounts and active Apple Pay users reaching record levels.

Q3 Outlook

Looking ahead, Apple expects modest revenue growth in the June quarter, with year-over-year gains projected in the low to mid-single digits. Gross margins are forecast between 45.5% and 46.5%, a range that includes the estimated hit from tariff-related costs.

The Bottom Line

Apple’s loyal customer base, expanding services portfolio, and operational scale provide a solid foundation for long-term growth.

However, in the near term, concerns about rising costs, hiccups in AI rollouts, and macroeconomic uncertainty could keep the stock range bound. Given the short-term pressure on earnings, Wall Street is cautiously optimistic about AAPL stock and maintains a “Moderate Buy” consensus rating.

Further, AAPL stock is trading at a forward price-earnings multiple of 29.43x, which looks stretched, especially when paired with the modest earnings growth forecast of 8.23% for FY26.