Apple Shares Fell 3% After Earnings. The Company Reports Its Best Year Ever and $479 Billion in Revenue
New CEO John Ternus presented a record quarter and a record year. But investors focused on something else: margins are expected to fall in the most important quarter of the year, and the reason is memory chips, which are getting more expensive because of the artificial intelligence boom.
Key points
Apple earned $132 billion for the year, the most in its history, and its shares still fell.
Margins are expected to fall over the holidays because of memory chips being snapped up by AI data centers.
The $1,999 foldable iPhone Duo sold out, and new orders won’t arrive until late January.
Monday evening was supposed to be a celebration for Apple $AAPL. The company released its results for the fourth fiscal quarter, which ended on September 26, and the numbers were better than the market had expected. Revenue of $114.5 billion was up 12% year over year, while earnings per share rose 14% to $2.10. Net income reached $30.7 billion.
And yet the stock lost nearly 3% in after-hours trading, slipping below $330. Investors weren’t listening to what the company had earned, but to what it said about the next three months.
Apple’s best year ever
Apple’s fiscal year 2026 ended with revenue of $478.8 billion, up 15% from last year. Net income for the year reached $132.2 billion, or roughly 2.8 trillion Czech korunas. For perspective, that’s about what the Czech state spends in an entire year.
The iPhone was once again the driving force. In September, the company had been selling its new iPhone 18 Pro and Pro Max models for only about nine days, yet it still posted a record September quarter. iPhone revenue rose 17% to $57.6 billion. Macs are also doing well, while iPads and accessories (watches, headphones, home devices) are declining.
Segment | Revenue (USD bn) | Year-over-year change |
|---|---|---|
iPhone | 57.6 | +17% |
Services | 31.6 | +10% |
Mac | 10.8 | +24% |
Wearables and accessories | 8.3 | -8% |
iPad | 6.2 | -10% |
The turnaround in China is remarkable. Just a year ago, analysts were debating whether Apple was losing ground in that market to local brands. This time, revenue in Greater China grew 21% for the quarter and 28% for the full year.
One thing takes a little shine off the results: some of the profit came from tariff refunds. Apple got back $731 million from earlier tariff payments, adding about one percentage point to gross margin and 5 cents to earnings per share. Without that help, earnings per share would have been $2.05—still above estimates, but by a smaller margin.
Memory chips are the biggest problem
Gross margin—the portion of revenue left after subtracting manufacturing costs—reached 47.9% for the quarter. But Apple expects just 45% to 46% for the holiday quarter. The market had been expecting 46.3%.
That may sound minor, but for a company with more than $150 billion in quarterly revenue, each percentage point of margin is worth roughly $1.5 billion. And CFO Kevan Parekh admitted that the decline is almost entirely due to one thing: more expensive memory chips.
“What we’re seeing in memory prices right now is unprecedented. It’s pushing us to raise prices.”
John Ternus, Apple CEO, on the earnings call
The mechanics are simple, and bad news for Apple. DRAM and NAND memory chip manufacturers are running at full capacity, but data center operators building out AI infrastructure are snapping up much of that capacity, signing long-term contracts at high prices. Apple, which doesn’t build large data centers of its own and has long benefited from not spending on the AI boom, is now competing for the same chips with companies like Microsoft and Amazon.
The company is fighting back in three ways. First, it raised prices: Macs and iPads at the end of June, and iPhones by $100 at their September launch. Second, it’s stockpiling: component inventories doubled during the quarter to $14.5 billion, and the value of firm orders with suppliers rose by another $33 billion. Third, it’s pushing for lower prices on other components. But Ternus made no secret of the fact that the situation won’t improve after the holidays, and memory prices will keep rising. He didn’t rule out further product price increases.
A foldable iPhone you can’t buy
According to the company’s leadership, the holiday quarter is set to be the strongest quarter in Apple’s history. Revenue is expected to grow 7% to 10%, while analysts had expected only about 6%. That outlook pleased the market, even if it wasn’t enough to outweigh concerns about margins.
The iPhone Duo, the first foldable iPhone, plays a key role. It went on sale on October 23 for $1,999. Demand is so far outstripping supply that new orders won’t arrive until late January. Some of the first devices also had an issue with cracked displays, and the company is replacing them.
“As of today, the iPhone Duo is constrained. It’s really hard to predict when supply and demand will come into balance.”
Sabih Khan, Apple COO
That’s why Apple framed its guidance as its “best estimate under constrained supply.” In other words, the company would sell more if it could make more. Macs and iPads are also facing supply constraints, again because of memory.
Services are slowing, and Siri will cost money
The second thing that made investors nervous is services. The App Store, iCloud, Apple Music, and Apple TV brought in a record $31.6 billion, but 10% growth is the slowest in more than three years. For the holiday quarter, the company expects just 8% to 9%.
That matters because services have a gross margin of 76%, while hardware has a much lower one. The larger their share of revenue, the more profitable Apple becomes. When services slow just as more expensive components are putting pressure on hardware, margins come under pressure from both sides.
Apple is looking for its next source of growth. It now has more than 2.5 billion active devices, and its leadership hinted that the new AI-powered Siri will have usage limits for features running in the cloud, with users paying extra for greater capacity. iCloud storage plans are also changing. But Ternus was evasive when asked about personal AI agents, which competitors have been touting.
“Investors will be focused on rising component costs, the sustainability of gross margins, and the pace of services growth.”
Wamsi Mohan, Bank of America analyst, in a note before the earnings release
Mohan was right on the money. All three points emerged as weak spots after the results were released.
An expensive stock leaves no room for error
Apple shares had gained about 27% this year ahead of the earnings release, and reached a record high of more than $350 per share at the end of October. The company’s market value is around $5 trillion, putting it either just above or just below Nvidia, depending on the day.
That kind of growth comes at a high price. The stock trades at more than 35 times expected earnings for the next twelve months, its highest valuation in a long time. When a company is valued this richly, the market doesn’t forgive even the slightest sign of deterioration. A record quarter was expected; lower margins weren’t.
For now, shareholders can at least take comfort in the money the company is returning to them. For the full fiscal year, Apple bought back $86.4 billion of its own shares and paid another $15.7 billion in dividends. The quarterly dividend of $0.27 per share will be paid on November 16.
John Ternus’s first test as CEO ultimately wasn’t about products, which he knows best as a former hardware chief. It was about procurement. Whether Apple can secure enough memory chips at a reasonable price in the coming quarters will determine whether it can turn record revenue into record profits as well.
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