China iPhone 17 surge reinforces Apple’s franchise but not its valuation

What happened

Counterpoint data show that Apple captured roughly 25% of China’s smartphone market in October, with iPhone sales rising 37% year-on-year on the back of strong iPhone 17 demand. This performance suggests Apple has reasserted itself in Greater China—already a $64.4 billion revenue region in FY2025—despite intensifying competition from local OEMs and Huawei’s resurgence. The surge supports the view from our master report that Apple’s flagship hardware cycles, powered by leading-edge Apple silicon and on-device features, remain effective at driving upgrades and reinforcing its installed base. A larger active iPhone base in China also creates a longer-term tailwind for Apple’s $109 billion Services segment, whose economics are central to the company’s ~47% gross margin and robust free cash flow profile. However, the data represent a single launch-month snapshot, and do not resolve broader questions around demand sustainability, regulatory pressure on App Store economics, or a valuation that already embeds high growth expectations.

Implication

The October China numbers introduce upside risk to near-term iPhone and Greater China revenue, which could support modest EPS outperformance versus current consensus. If strong early iPhone 17 uptake translates into a sustained cycle, it would further entrench Apple’s ecosystem in a key growth market and compound higher-margin Services revenue over time. Near-term beats may help justify Apple’s elevated ~36x P/E multiple, reducing immediate downside risk even as intrinsic-value models still indicate limited margin of safety. Nonetheless, investors should be cautious about extrapolating one month of data in a highly promotional launch period, particularly given ongoing regulatory overhang on App Store fees and geopolitical risk in China. Existing shareholders can reasonably maintain positions while monitoring follow-through demand into subsequent quarters, whereas prospective buyers may prefer to wait for either a pullback or clearer evidence that elevated China momentum can be sustained beyond the launch window.

Thesis delta

We view the China share and growth data as incrementally positive for the durability of Apple’s iPhone franchise and as a modest near-term catalyst for revenue and EPS from a key geography. This slightly improves the risk/reward skew relative to our prior stance, but does not by itself overcome concerns about a stretched valuation and unresolved regulatory risks. Our rating remains HOLD, with a somewhat higher bias to upgrade if evidence of sustained China strength and Services leverage continues.