Apple Stock Plunged on Tariff News, But It's Proving to Be Unstoppable in Another Lucructive Area

Apple’s stock has been rattled by escalating U.S. tariffs in 2025, with shares plummeting 25% year-to-date as of April—a steeper decline than the broader market’s 14% drop. Yet beneath the turbulence lies a paradox: while tariffs threaten its hardware margins, Apple’s services segment is surging, offering a lifeline that could redefine its future. The question for investors is whether this growth can offset the near-term pain.

The immediate catalyst was President Trump’s announcement of tariffs targeting over 100 countries, including China, Vietnam, and India, where Apple sources 98% of its iPhone production. A 54% tariff on Chinese imports—potentially rising to 150%—threatened to add $300 per iPhone 16 Pro unit, slashing gross margins from 43% to 13% if Apple kept prices steady. Analysts warned of a worst-case 30% earnings drop, driven by margin compression on hardware, which accounts for 88% of revenue.

Apple’s response has been swift but fraught with trade-offs. It raised iPhone prices by up to $200 for flagship models, leaned on carrier partnerships to share costs, and accelerated production shifts to India, aiming for 25% of iPhone output there by 2025. Yet these moves carry risks: delayed iPhone upgrades could hurt hardware sales, and higher prices might deter buyers.

But services—Apple’s crown jewel—are thriving. In Q1 2025, services revenue surged 14%, far outpacing hardware’s 1.5% growth. With margins at 75% (versus 39% for hardware), services now drive Apple’s profit engine. Over four years, services have lifted Apple’s overall gross margins from 38% to 46%. This growth isn’t just a side business: it’s a critical buffer.

Services’ resilience stems from its recurring revenue model. Subscriptions (Apple Music, iCloud), Apple Care, and app store fees are sticky, with customers unlikely to abandon them even during economic downturns. In Q1 2025, services revenue hit $24 billion, up from $16 billion in 2021, now contributing 18% of total revenue.

Yet risks linger. If tariffs force iPhone prices above $1,500, fewer sales could crimp services. Fewer iPhone owners mean fewer potential subscribers or Apple Care buyers. Morningstar analysts estimate tariffs could slice earnings by 20–40%, depending on duration and Apple’s ability to offset costs. Meanwhile, Apple’s 30x P/E ratio—far above the S&P 500’s average—leaves little room for error if earnings disappoint.

Apple’s long-term strategy hinges on two bets: first, that services can grow fast enough to offset hardware’s margin erosion; second, that its supply chain shifts to lower-tariff regions like India will pay off. While India’s production capacity is ramping up (targeting 50% by 2027), scaling without sacrificing quality or speed remains a hurdle.

The verdict? Apple’s near-term struggles are real, but services offer a path to stability. If it can maintain services’ 14%+ growth while mitigating hardware headwinds—through pricing, cost-sharing, and diversification—its stock could rebound. The $300+ tariff per iPhone is a dire scenario, but Apple’s pricing power and ecosystem lock-in give it room to maneuver.

In conclusion, Apple’s stock remains a tale of two businesses: one under siege by tariffs, the other defying gravity. Investors should weigh the immediate pain against services’ secular growth. With services margins at 75% and revenue climbing, Apple’s future may increasingly depend on less glamorous—but far more profitable—software and services. For now, the company is proving that even in a storm, it can find a way to keep growing.