Buy, Sell or Hold Apple Stock? Key Tips Ahead of Q3 Earnings

Apple AAPL is set to report third-quarter fiscal 2026 results on July 30.

Apple expects third-quarter fiscal 2026 net sales to grow between 14% and 17% on a year-over-year basis. Gross margin is expected to be 47.5-48.5% in the third quarter of fiscal 2026. Operating expenses are expected to be between $18.8 billion and $19.1 billion.

The Zacks Consensus Estimate for fiscal third-quarter net sales is pegged at $108.75 billion, indicating year-over-year growth of 15.64%. 

The consensus mark for earnings is pegged at $1.88 per share, unchanged over the past 30 days. The estimate indicates a 19.75% increase from the year-ago quarter’s reported figure.

Consensus Estimate Trend

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AAPL’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the earnings surprise being 7.34%, on average. 

Let us see how things have shaped up prior to this announcement.

Factors to Drive Apple’s Fiscal Q3 Results

Apple’s third-quarter fiscal 2026 results are expected to reflect benefits from continued strong demand for the iPhone 17 family, supported by healthy upgrade activity, market share gains and expanding first-time user adoption. The company reported record iPhone revenues in both the first and second quarters of fiscal 2026, with particularly strong momentum in the United States, Greater China, India, Japan and other emerging markets. The launch of the iPhone 17e further broadened Apple’s addressable market, while Apple Intelligence capabilities and the A19/A19 Pro chips enhanced the appeal of the premium lineup. The installed base also reached an all-time high, providing a solid foundation for continued hardware sales in the to-be-reported quarter.

Apple’s Services segment is expected to have been another key contributor in the to-be-reported quarter. Services reached a record $31 billion in the second quarter of fiscal 2026, driven by double-digit growth across most categories and markets. Growth in paid subscriptions, transacting accounts, App Store activity, Apple TV+, Apple Pay, cloud services and enterprise offerings, such as Apple Business, is likely to have continued to support recurring revenue. With an installed base exceeding 2.5 billion active devices, Apple remains well positioned to monetize its ecosystem through higher customer engagement and subscription adoption.

Apple is expected to have benefited from growing adoption of Apple Intelligence across its ecosystem. The company continued expanding AI capabilities across iPhone, Mac, iPad and AirPods while emphasizing privacy-focused on-device AI powered by Apple Silicon. Strong demand for recently introduced products, including MacBook Neo, M5-powered Macs, M4-powered iPad Air and new AirPods, is likely to have supported hardware revenues. Apple’s positioning of Mac as a preferred platform for AI development and enterprise deployment is also expected to have strengthened demand from commercial customers.

However, supply chain constraints are expected to have hurt Apple’s fiscal third- quarter results. Although Apple expected supply conditions to improve after the fiscal second quarter, the company acknowledged that iPhone and Mac demand continued to outpace available supply. Apple significantly increased research and development spending to accelerate investments in AI, custom silicon and future products. While these investments support long-term innovation, elevated operating expenses is are expected to have kept operating margin under pressure in the third quarter of fiscal 2026.

AAPL Shares Outperform Sector, Valuation Stretched

Apple shares have appreciated 23.9% year to date (YTD), outperforming the Zacks Computer & Technology sector’s return of 9.9%. While Apple shares have outperformed HP HPQ and Alphabet GOOGL over the time frame, the shares have lagged Dell Technologies DELL. YTD, shares of HP, Alphabet and Dell have returned 19.2%, 4.3% and 238.4%, respectively.

Apple Stock’s Price Performance

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The AAPL stock is not so cheap, as suggested by the Value Score of F. In terms of the forward 12-month price/earnings, AAPL is trading at 35.73X, higher than the Zacks Computer & Technology sector’s 20.90X, Dell’s 20.59X, HP’s 9.03X and Alphabet’s 20.48X.

AAPL Stock is Overvalued

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AI Focus to Aid AAPL’s Prospects

Apple’s long-term outlook is supported by the expansion of Apple Intelligence across its hardware ecosystem. The combination of custom Apple Silicon, on-device AI processing, privacy-focused architecture and continued investment in foundation models should enhance user engagement, encourage device upgrades and create new monetization opportunities. The company expects to introduce a more personalized Siri and additional AI capabilities, strengthening its competitive position.

Apple’s installed base of more than 2.5 billion active devices provides a significant long-term advantage. As the user base expands, Services — including subscriptions, payments, cloud, advertising and digital content — should continue generating stable, high-margin recurring revenues. The company continues to gain traction among enterprise customers deploying Macs, iPads and iPhones for AI workloads, productivity and security. Simultaneously, investments in India and other emerging markets through retail expansion, manufacturing initiatives and localized products provide meaningful long-term growth opportunities.

Nevertheless, Apple faces growing competition from Chinese smartphone vendors and AI-focused device manufacturers investing aggressively in generative AI, cloud AI and enterprise software. Increasing antitrust scrutiny, App Store regulations, digital market legislation and privacy-related requirements is are expected to limit Apple’s ability to monetize its ecosystem and increase compliance costs over time.

Conclusion

Apple enters its third-quarter fiscal 2026 earnings announcement with strong momentum, supported by healthy iPhone demand, robust Services growth and expanding Apple Intelligence adoption across its ecosystem. The company’s growing installed base and continued investments in AI, custom silicon and emerging markets provide a solid foundation for long-term growth. However, elevated AI-related investments, supply constraints, regulatory pressures and an expensive valuation temper the upside. While Apple’s fundamentals remain strong, much of the near-term optimism appears reflected in the stock, making investors closely watch the company's execution and guidance for the remainder of fiscal 2026.

Currently, AAPL carries a Zacks Rank #3 (Hold), which implies that investors should wait for a favorable point to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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