Apple Inc (NASDAQ:AAPL, ETR:APC) is facing escalating tariff costs and shrinking product margins that could weigh heavily on future profits, prompting analysts at Jefferies to downgrade Apple shares to Underperform.
While Apple’s March-quarter results modestly exceeded Jefferies’ expectations, the firm said the company’s outlook and mounting tariff exposure signal further earnings risk ahead.
“Management guided to a $900 million tariff impact in the June quarter alone,” Jefferies analysts wrote in a note to clients. “We believe tariff impact will expand over time to create more earnings downside.”
Apple posted a 5% year-over-year increase in revenue and net profit for the second quarter of its 2025 fiscal year, with earnings per share rising 8% to $1.65. Growth was primarily driven by strong performance in the US and Asia excluding China, as well as gains in iPad and services revenue.
Still, the company offered only low-single to mid-single-digit revenue growth guidance for the current quarter, raising concern about demand trends and cost headwinds.
“Product margin is already under pressure,” Jefferies said, attributing the weakness to a mix of faster build cycles, unfavorable product mix, foreign exchange, and seasonal inefficiencies. Though services gross margin hit a record 75.7%, providing some cushion, analysts believe that won’t be enough to offset growing risks tied to Apple’s hardware business.
China exposure worrying
One of the biggest concerns, Jefferies said, is the impact of US tariffs on Chinese imports. The $900 million hit Apple expects in the current quarter equates to about 1.5% of product revenue. The firm estimates Apple may have pulled forward shipments of about 7 million iPhone 16 Pro and Pro Max units from China in April to mitigate tariff exposure — enough to meet likely US demand for the quarter.
But those measures may offer only temporary relief.
“Apple’s June-quarter guidance is a best-case scenario,” Jefferies said, warning that the situation could worsen if tariffs expand beyond China to other manufacturing hubs like India and Vietnam. The firm estimates that for every 1 percentage point increase in tariffs beyond current assumptions, Apple’s pre-tax profit would take a 1.5-point hit.
“We expect more earnings downside,” the analysts wrote.
Apple shares have climbed in recent months on hopes of a rebound in demand and momentum in services. But Jefferies’ downgrade adds to a chorus of caution among investors weighing geopolitical risks, supply chain disruptions, and rising costs against the company’s long-term growth potential.
Shares of Apple fell 3.9% on Friday morning.