Apple F2Q26 Results Beat Expectations, Strong Demand Drives Gross Margin Improvement

Overview

Goldman Sachs reviewed Apple Inc.’s fiscal second-quarter 2026 results, concluding that the outcomes surpassed consensus estimates and key metrics aligned with its own above-expectation projections. Despite supply constraints and cost inflation, Apple demonstrated robust product demand and effective cost management. Based on sustainable growth momentum and attractive valuation, Goldman Sachs maintains a Buy rating and raises its 12-month target price from $330 to $340.

Core views

Results broadly exceeded expectations, with strong growth momentum. Apple’s F2Q26 earnings per share came in at $2.01, above Goldman Sachs’ estimate of $2.00 and the consensus forecast of $1.95; revenue totaled $111.2 billion, surpassing the expected $109.5 billion. iPhone revenue rose 22% to $57 billion, with the iPhone 17 series emerging as the most popular model; Mac revenue reached $8.4 billion, driven by demand for AI‑powered workloads and the success of the MacBook Neo; Services revenue expanded 16% to $31 billion, supported by an active installed base exceeding 2.5 billion units. Gross margin performance exceeded concerns, though supply constraints limited revenue realization. Despite a significant quarter‑over‑quarter increase in memory costs, F2Q26 gross margin still reached 49.3%, better than the expected 48.3%, largely due to inventory unaffected by inflation. F3Q26 gross margin guidance ranges from 47.5% to 48.5%, also above consensus. The report emphasizes that without supply constraints on advanced‑node SOCs, this quarter’s revenue could have grown by at least another 250 basis points, and next quarter’s guidance already assumes continued supply limitations, indicating underlying demand exceeding sales capacity. Capital allocation strategy has shifted, with shareholder returns continuing to grow. Apple has increased its share repurchase authorization by $100 billion and no longer aims for net cash neutrality, yet expects shareholder returns to remain robust. Additionally, the company is seeking over $3 billion in tariff refunds, which will ultimately be applied as a reduction to COGS. In terms of valuation, the report finds current multiples attractive relative to Apple’s historical levels and its tech peers, with Services’ margin expansion supporting premium valuations.

Analysis framework

The report employs a bottom‑up product‑line analysis framework, disaggregating revenue drivers across core businesses such as iPhone, Mac, and Services, while incorporating supply‑side constraints (e.g., advanced‑node SOC capacity) to assess potential revenue ceilings. For margin analysis, the firm focuses on the interplay between memory cost inflation and inventory buffers, as well as the potential impact of tariff refunds on COGS. Valuation is anchored by forward‑looking P/E ratios (NTM+1Y EPS), benchmarked against historical multiples and peer averages, highlighting the high-margin nature of the Services business as a key driver of the overall valuation premium (the ‘Apple‑as‑a‑Service’ logic).

Methodology notes

• Valuation MethodologyPE/PEG valuation

  Forward‑Looking P/E Valuation

  The report uses a multiple of 34 times next‑12‑month earnings per share (NTM+1Y EPS) to derive the target price, a common relative valuation approach for tech stocks that facilitates comparisons with historical levels and peers.

• Competitive and Strategic FrameworkMoat / competitive advantage

  Installed Base and Ecosystem Stickiness

  The report underscores Apple’s active installed base of over 2.5 billion devices as a competitive moat, reducing customer acquisition costs and enhancing the visibility and durability of service revenues.

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Supply Constraints on Revenue Growth

  The analysis highlights how supply-side factors (advanced‑node SOC capacity) constrain revenue release; without these limitations, growth would have been higher—a typical supply‑demand mismatch assessment used to gauge latent demand strength.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Apple Inc. (AAPL)

  Beneficiary asset, with results exceeding expectations and strong guidance

  Strengths

  Strong brand loyalty, over 2.5 billion active devices, high-margin Services growth, effective cost management

  Weaknesses

  Pressure from rising memory costs, supply constraints limiting near‑term revenue release

  Comparison

  Valuation attractive relative to key tech peers

  Risks

  Weakening consumer demand, supply chain disruptions, intensifying competition, regulatory risks

Key data

• F2Q26 EPS$2.01Above Goldman Sachs’ estimate of $2.00 and the consensus forecast of $1.95
• F2Q26 Revenue$111.2 billionUp 17% year‑over‑year, exceeding the consensus estimate of $109.5 billion
• F2Q26 Gross Margin49.3%Better than the consensus estimate of 48.3%, with a product gross margin of 38.7%
• F3Q26 Revenue Guidance14–17% growthWell above the consensus expectation of 10% growth
• F3Q26 Gross Margin Guidance47.5–48.5%Above the consensus estimate of 47.5%
• iPhone Revenue$57 billionUp 22% year‑over‑year
• Services Revenue$31 billionUp 16% year‑over‑year
• Increase in Share Repurchase Authorization$100 billionNo longer pursuing net cash neutrality
• Tariff Refund Seek>$3 billionTo be applied as a COGS reduction upon receipt

Impact & implications

The report argues that market focus on slowing product revenue growth overlooks the strength and resilience of Apple’s ecosystem. The Services segment is expected to drive the majority of margin expansion over the next five years, marking a turning point in the services‑investment narrative and underpinning Apple’s premium valuation. The durability of the installed base, combined with the ability to attach additional services and products, lays the foundation for recurring revenue opportunities—‘Apple as a Service.’ Valuation remains attractive relative to historical multiples and peer benchmarks.

Risks

• Weakening consumer demand; a softening macroeconomic environment could reduce purchases
• Supply chain disruptions; with most final assembly in China, geopolitical tensions may lead to trade interruptions
• Intensifying competition; facing more aggressive rivals in areas such as video streaming
• Regulatory risks; market interventions by major regulators could erode competitive advantages
• Execution risks in capital allocation; M&A deals carry no guarantee of success, and share repurchases may face lower ROI or regulatory scrutiny

What to watch

• Sustainability of iPhone growth momentum
• Gross margin trajectory, particularly the lagged impact of memory cost inflation versus offsetting effects from shifts in the high‑end product mix
• Progress on the new product roadmap
• Potential shifts in capital allocation strategy