A worked DCF on AAPL — and the three places the Council disagrees with the textbook model

A 5-stage DCF on AAPL with the inputs laid bare — and three places where the Council's seats part company with the textbook intrinsic-value answer.

The DCF, end to end

Stage 1 (years 1-5, explicit revenue + margin), stage 2 (years 6-10, fading growth toward terminal), stage 3 (terminal value via Gordon Growth). Inputs we'll use for AAPL — current, defensible, and the same ones the Council seats inherit:

• Revenue growth y1-5: 5.5% blended (Services accelerating ~12%, iPhone ~2%, weighted to current mix).
• Operating margin steady-state: 31.5% (current ~32%, slight compression from Services mix-shift + Vision Pro absorption).
• Tax rate: 16.5% effective (15% global minimum + state).
• Reinvestment (capex + ΔWC) / revenue: 6.0%.
• Terminal growth (g): 2.5% — anchored to long-run real GDP + inflation, slightly above to credit Services mix.
• WACC: 8.4% (build below).

WACC build

• Risk-free rate: 4.4% (10Y UST).
• Equity risk premium: 5.5% (Damodaran 2026 implied).
• Beta: 1.22 (5Y monthly vs S&P).
• Cost of equity: 4.4% + 1.22 × 5.5% = 11.1%.
• After-tax cost of debt: 3.4% (weighted YTM × (1 − 16.5%)).
• Weights: 96% equity / 4% debt (market cap vs net debt).
• WACC = 11.1% × 0.96 + 3.4% × 0.04 ≈ 10.8% at first pass — adjusted down to 8.4% only if you accept the Services-as-recurring-revenue re-rating (lower equity risk). The Council does not, and that's the first disagreement.

Where the textbook lands

Run the inputs above and the intrinsic value lands roughly 10-15% below current price at WACC 10.8%, or 5-10% above at the lower 8.4% WACC. That's not a 0.1% difference — it's the entire active investing debate compressed into one assumption. The textbook now tells you "HOLD with bias to TRIM at the higher discount rate."

The sensitivity that matters more than the answer

Hold WACC fixed and walk terminal growth from 2.0% to 3.0%. Intrinsic value moves roughly ±25%. That's not a model artifact; that's the mathematical fact that ~60% of AAPL's DCF value lives past year 10. Anyone quoting an AAPL "fair value" without quoting the g_terminal they used is hand-waving.

Three places the Council refuses the textbook

1. The capital-allocation seat on buyback yield: AAPL has run buybacks at ~3-4% of cap per year. The textbook DCF treats those as a free cash return. This seat refuses — its named falsifier is "ROIC on the marginal buyback dollar < WACC + 200 bps." Repurchases at a price near intrinsic value at 10.8% WACC fail that test; the seat downgrades reinvestment quality, which pulls the steady-state margin assumption.
2. The moat seat on services durability: Services 80%+ gross margin is the swing factor. The seat flags App Store regulatory risk (EU DMA, US tying litigation) as the named falsifier — "if take-rate compresses from 30% to 20% in any geography >5% of services revenue, the moat narrative fails." Second disagreement: the seat refuses to bake permanent take-rate into terminal margins.
3. The short-seller on the iPhone replacement cycle: reads the most recent 10-Q segment commentary and flags carrier-subsidy unwinds. Named falsifier: "if iPhone unit replacement cycle stretches past 4.0 years on rolling 12-month average, base-case growth drops 150 bps." That moves stage-1 growth, which compounds.

What this costs you to run

Everything above runs on Quorum Lite — free, 20 runs/day per user, on our private GPU, zero cloud cost to you. The DCF math, the WACC build, the sensitivity table — all rendered on the free tier. Quorum Pro and Quorum Max upgrade the depth of the seat debate; Quorum Ultra-Max is the fourth tier. The DCF mechanics and canonical briefing contract remain consistent across all four. For a DCF audit on AAPL, Lite is enough.

See the AAPL Council verdict →   Tier comparison →