Apple's Record iPhone Quarter Highlights Strength but Amplifies Valuation Concerns

What happened

Apple reported its biggest iPhone quarter in history with impressive sales growth in Q4 2025, aligning with recent Q1 FY26 results that showed record revenue and margins. This performance underscores Apple's brand power and ecosystem resilience in a stagnant U.S. smartphone market. However, the DeepValue report cautions that this success is heavily dependent on China, where iPhone growth has been volatile and competitive pressures persist. Despite the headline numbers, rising memory costs, regulatory risks to high-margin services, and a premium P/E of 32x embed significant downside if execution falters. Investors should look beyond the propaganda of growth to assess sustainability amid these headwinds.

Implication

Apple's ability to drive iPhone growth in a flat market reinforces its moat and premium positioning, likely supporting short-term investor sentiment. However, this growth is concentrated in China, where share swings and local competition could quickly reverse gains, as seen in past cycles. Rising DRAM/NAND costs and potential tariff impacts threaten to compress hardware margins, offsetting services' high profitability. Regulatory actions, such as EU DMA enforcement and U.S. antitrust cases, pose a persistent overhang on services economics, which are critical to overall earnings. With the stock trading at a high multiple, any deviation from perfect execution could trigger a de-rating, making patience prudent until clearer signs of margin defense or a more attractive entry point emerge.

Thesis delta

The news reinforces the existing investment thesis without altering its core risks. It confirms the strong iPhone cycle already reflected in the DeepValue report's base case, but does not change the assessment that upside is limited due to valuation and persistent headwinds. Therefore, the 'WAIT' rating remains appropriate, as the stock lacks a margin of safety against potential disappointments in China, costs, or regulation.