The following is an excerpt from Zacks Chief Strategist John Blank’s full Aug Market Strategy report To access the full PDF, click here.

I. For Investors, Apple’s Q2 Earnings Report Shared a Broader Macro Narrative

A. Key Takeaways

• On July 31st, Apple ((AAPL Quick QuoteAAPL - Free Report) ) reported record Q3 FY2026 (aka Q2) revenue of $109.42 billion (+16.4% YoY), outperforming Wall Street expectations of $108.9B–$109.0B, while diluted EPS jumped +28.7% YoY to $2.02 (exceeding the $1.88 consensus estimate).
• Diluted EPS included a +$0.11 benefit from tariff refunds.
• Excluding this one-time item? Adjusted EPS was $1.91, which still beat consensus expectations.
• Apple’s reported gross profit margin reached 50.1% (vs. guidance of 47.5%–48.5%). 
• Adjusting for the ~200 basis point tariff refund benefit? The underlying gross margin was 48.1%, landing at the upper bound of previous guidance.
• iPhone sales surged +21.7% YoY to $54.25 billion, and Mac revenue soared +28.7% YoY to $10.35 billion, offsetting a -5.9% YoY decline in iPad sales ($6.19 billion).
• Despite record financial results and double-digit growth across every geographic region, AAPL shares declined -7.3% on July 31st.

Hmmmm….

Management flagged intensifying component supply constraints — and rising AI computing cost pressures — heading into the third quarter of 2026.

Zacks AAPL Share Price, EPS Surprise, and Annual EPS Consensus:

Image Source: Zacks Investment Research

B. Segment Dynamics: Hardware Expansion and Services Scale

• iPhone ($54.25B, +21.7% YoY): Represented 49.6% of total revenue. Strong upgrade cycles for the iPhone 17 family and adoption of Apple Intelligence features drove accelerated replacement demand.
• Mac ($10.35B, +28.7% YoY): Dramatically beat consensus forecasts ($8.67B), propelled by enterprise and consumer demand for M5-powered MacBooks and the lower-priced MacBook Neo.
• Services ($30.73B, +12.1% YoY): Reached another all-time high, anchored by active device expansion across global markets.
• iPad ($6.19B, -5.9% YoY) & Wearables ($7.88B, +6.5% YoY): iPad missed consensus expectations ($8.67B) due to difficult YoY comparisons, while Wearables, Home, & Accessories maintained steady modest growth.

C. Balance Sheet, Capital Allocation, and Strategic Outlook

Operating cash flow hit a June-quarter record of $34.4 billion.

During the nine-month YTD period, Apple returned over $61.8 billion via share repurchases and paid $11.73 billion in dividends, declaring a quarterly dividend of $0.27 per share payable in August 2026.

Looking ahead to Q4 FY2026, investor focus shifts toward management continuity as CEO Tim Cook transitions to Executive Chairman and John Ternus steps into the CEO role on September 1st.

Although core product demand remains elevated — management cautioned that semiconductor supply constraints and rising infrastructure expenses for AI integration could weigh on Q4 margins — explaining the cautious stock market reaction post-earnings.

A chart (below) shows the PPI for Semiconductors & Components, 2016 to 2026.
 

Image Source: St Louis Federal Reserve

Yes!

A broad semiconductor price surge is very real.

Wait for the Xmas shopping season to confirm it.

Next, let’s explore the top-down conditions seen in Zacks latest industry ranks.

This month, internal sector strength matches perfectly with Apple’s Q2 narrative.
 

II. Zacks August Sector/Industry/Company Telescope

July 31st, 2026 data show Info Tech remains dominant, at Very Attractive. Misc. Tech, Electronics, and Semi led.

Communication Services rose to Attractive from Market Weight. AI Telco Equipment group ranked high, again.

Financials rose to Attractive from Market Weight. Investment Banking led.

Industrials fell notable to Market Weight from Very Attractive. Transports stay strong.

Energy fell to Market Weight; Coal led again. Health Care fell to Market Weight. Medical Care led again.

Consumer Discretionary fell to Unattractive from Market Weight.

Utilities fell to a Very Unattractive rating. Materials fell to Very Unattractive as well.

Consumer Staples stayed Very Unattractive.

(1) Info Tech stayed Very Attractive. Misc. Tech, Electronics, and Semis led.

Zacks #1 Rank (STRONG BUY): United Microelectronics (UMC Quick QuoteUMC - Free Report)

(2) Communications Services rose to Attractive from Market Weight. Telco Equipment stayed strong, again. An AI group.

Zacks #1 Rank (STRONG BUY): NTT (NTTYY Quick QuoteNTTYY - Free Report)

(3) Financials rose to Attractive from Market Weight. Investment Banking looked best.

Zacks #1 Rank (STRONG BUY): UBS (UBS Quick QuoteUBS - Free Report)

(4) Industrials fell to Market Weight from Very Attractive. Transport and Pollution Control looked best.

(5) Energy fell to Market Weight from Attractive from Very Attractive. Coal led.

(6) Health Care fell to Market Weight from Attractive. Medical Care looked best.

(7) Consumer Discretionary fell to Unattractive from Market Weight. Home Furnishing - Appliances looked OK. That’s it.

(8) Utilities fell to Very Unattractive from Unattractive. Utility-Gas Distr. looked best.

(9) Materials fell to Very Unattractive from Unattractive. Building Products looked best.

(10) Consumer Staples stayed Very Unattractive. Solely, agri-business looked best.
 

Conclusion

This is a unique moment in stock trading.

One specific narrative — the ‘AI’ boom — is driving the entire share buying narrative.

That’s it for me.

Enjoy the rest of Zack AUG Market Strategy report.

Warm Regards,

John Blank
Zacks Chief Equity Strategist and Economist.