Apple overcomes Trump's trade war, slow start in AI to deliver surprisingly strong quarter

Key Points

• Apple reported a strong fiscal third quarter with a 9% increase in earnings ($23.4 billion) and a 10% increase in revenue ($94 billion) despite challenges from tariffs and AI competition.
• The company’s iPhone sales surged by 13% to $44.6 billion, exceeding analyst expectations and contributing to a 2% rise in its stock price.
• Trump's tariffs cost Apple approximately $900 million last quarter, and future tariff increases could lead to higher prices for upcoming iPhone models.
• Apple is under pressure to address its lag in the AI sector, particularly in improving its virtual assistant Siri, as it seeks to stimulate a new upgrade cycle for its devices.

SAN FRANCISCO (AP) — Apple shook off a thicket of tariffs and a botched entry into artificial intelligence to accelerate its revenue growth during its springtime quarter, but the trendsetting tech company still faces a bumpy road ahead that could lead to higher iPhone prices.

The April-June results released Thursday came against a backdrop of adversity that has been raising worries about the trajectory of a longtime tech kingpin that expects to absorb a setback of nearly $2 billion from the tariffs that President Donald Trump has already imposed and others in the pipeline.

Despite the doubts, Apple remains a moneymaking machine.

The Cupertino, California, company earned $23.4 billion, or $1.57 per share, during its fiscal third quarter, a 9% increase from the same time last year. Revenue climbed 10% from a year ago to $94 billion. The company’s iPhone sales surged 13% from a year ago to $44.6 billion. In another positive development, Apple's business in China showed signs of snapping out of a prolonged malaise with a 4% bump in revenue from the same time last year.

All those numbers were well above the analyst projections that steer investors, helping to boost Apple’s recently slumping stock price by about 3% in extended trading. But the unexpectedly solid performance doesn’t necessarily mean it’s smooth sailing ahead for Apple.

Tallying the toll of Trump's tariffs

Trump’s trade war targeting foreign-made products such as the iPhone and Apple’s stumbling start in the pivotal transition to AI is causing investors to question if the company will remain at the tech forefront as the industry moves into a new era.

Before Thursday’s report came out, Apple’s stock price had plunged by 17% so far this year to wipe out more than $600 billion in shareholder wealth and knock the company off its perch as the world’s most valuable company. Meanwhile, the shares of AI chipmaker Nvidia have surged 32% this year and the shares of AI pacesetter Microsoft have gained 27%, propelling the market value to $4 trillion.

Even though Apple remains highly profitable, the tariffs that Trump has already imposed on China and other countries cost the company $800 million during the past quarter, and CEO Tim Cook told analysts during a conference call that the fees would exact an additional toll of $1.1 billion during the July-September period. The company also predicted its revenue for July-September period would increase at a slightly slower pace than the past quarter.

Cook indicated the financial damage from the tariffs could have been much higher, telling analysts most of the components in iPhones and other Apple products are still shielded by temporary exemptions that the Trump administration granted most electronics in mid-April.

Sizing up how Apple and consumers are reacting to the trade war

Apple softened the blow of Trump’s tariffs on products made outside the U.S. during the past quarter by shifting its production of iPhones from China to India. But the administration intends to impose a 25% tariff on goods from India, a move that could intensify the pressure on Apple to raise the prices on the next generation of iPhones expected to be released in September. Cook wasn't asked about the possibility of an iPhone increase during his Thursday remarks to analysts.

Consumer fears about the tariffs driving up iPhone prices spurred an unusual buying spree of iPhones and Mac computers in the U.S. during early April, according to Cook. Apple estimated that spike accounted for roughly one percentage point of its 10% revenue increase in the past quarter, which translates into about $82 million in sales. Cook also credited an uptick in consumers upgrading to the latest model for helping Apple sell its 3 billionth iPhone since the device's 2007 debut.

Trump has been pressuring Apple to make all its iPhones in the U.S., a move that analysts believe would take years to pull off and ultimately double or triple the roughly $1,000 average price of the device. But Cook told analysts Thursday that the company is pushing to increase its computer chip production in the U.S. as one way of avoiding tariffs. “We ultimately will do more in the United States,” he said.

The AI challenges still ahead

Meanwhile, Apple is still trying to fulfill the AI promises it made last year when it unveiled an array of new iPhone features built on the revolutionary technology, raising expectations that the shift would spur millions of people to upgrade their old devices. But Apple still hasn’t delivered on an AI upgrade that was supposed to smarten up its often-bumbling virtual assistant Siri, one of the main reasons underlying the lackluster growth of iPhone sales.

“While these numbers certainly buy Apple time, the fact is that investors — and consumers — remain laser-focused on AI innovation. And Apple still has a long way to go in this game,” said Investing.com analyst Thomas Monteiro.