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Apple Inc. (NASDAQ: AAPL) shares fell 3.8% to $325.52 in premarket trading as of 8:24 a.m. ET on Tuesday. The company said rising memory chip prices will reduce its profit margins during the holiday quarter. The stock had already fallen 1.8% on Monday, before the results came out.
Strong results were not enough
Apple beat Wall Street’s estimates in its first report under new CEO John Ternus. Revenue for the September quarter rose 12% to $114.5 billion, and earnings per share rose 14% to $2.10.
iPhone and Mac sales also beat estimates. However, iPad sales fell, and revenue from Greater China missed forecasts.
iPhone revenue set a September-quarter record despite higher prices. Of the new lineup, only the iPhone 18 Pro models went on sale before the quarter ended. The figures do not include the foldable iPhone Duo, which launched in October.
The margin forecast is the main concern
Gross margin shows how much of its revenue Apple keeps after paying to make its products and deliver its services. Apple expects this figure to fall to between 45% and 46% in the December quarter, from 47.9% in the September quarter. That forecast was below Wall Street’s expectations.
Tariff refunds added about one percentage point to the September figure, so part of the expected drop reflects the end of that benefit. The rest comes mainly from higher memory costs and spending on Siri AI.
Apple still expects its biggest quarter ever for sales, with revenue growth of 7% to 10%. However, Evercore ISI estimates that earnings per share will grow much more slowly than sales. Apple also expects slower growth in Services, one of its most profitable businesses, and that forecast also fell short of expectations.
Apple linked the Services forecast to third-party licensing and foreign exchange. The slowdown matters because Services earns much higher margins than Apple’s hardware.
Memory prices are expected to keep rising
“What we’re seeing with memory pricing right now is unprecedented,” Ternus told analysts. Demand from AI data centers is pushing prices higher, and Ternus expects the increases to continue after December.
Apple has benefited from using memory it bought at lower prices, but that advantage is expected to shrink over time. The company is also securing more supply. Its inventory more than doubled from a year earlier, and its purchase commitments rose by $33 billion between June and September.
Apple has already raised prices on iPhones, Macs and iPads, but Ternus said this and other measures will not cover the full cost. Supply is also tight. Limited memory availability will hold back Mac and iPad sales this quarter, and Apple could not say when supply of its new foldable iPhone Duo will meet demand.
Shoppers could also feel the effect. Dan Coatsworth, head of markets at AJ Bell, told Reuters that Ternus’s comments imply “Apple products are going to become even more expensive”. At the same time, consumers already face a higher cost of living.
Most analysts remain positive
Most analysts still like the stock, although JPMorgan and Morgan Stanley made small cuts to their price targets. Evercore ISI expects margins to remain uneven until memory prices stabilize or Siri AI brings in new revenue.
Bernstein said it remains cautious in the near term but stays bullish over the long term. KeyBanc took a more negative view and kept its Underweight rating.
Valuation is another factor. Apple shares had gained about 25% this year through Monday’s close, and the stock trades at a higher multiple of expected earnings than Microsoft or Alphabet. Some commentators said this leaves little room for disappointment.
Wider market
Technology stocks were already under pressure. The Nasdaq Composite fell about 1% on Monday, and the Nasdaq 100 closed more than 10% below its record close, which placed it in correction territory.
The decline appears specific to Apple, since Nasdaq 100 futures were slightly higher earlier this morning. Investors are also waiting for AMD’s results and the U.S. midterm elections. Apple’s next quarterly report will be the first to include iPhone Duo sales.
