Apple Tops Estimates, but Margin Warning Sends AAPL Shares Lower

Apple beat Wall Street's numbers in John Ternus's first quarter as CEO. The stock fell anyway. The reason sits in one line of guidance: gross margin.

For the September quarter, Apple earned $2.10 a share on revenue of $114.5 billion, up 12% from a year ago. Analysts expected about $2.00 and $113.4 billion, per Yahoo Finance. One-off tariff refunds added 5 cents to earnings, so the underlying beat was narrower than it looks.

The December-quarter outlook is what hurt. CFO Kevan Parekh guided gross margin to 45% to 46%, below the 46.3% analysts averaged and down from the 47.9% just reported, CNBC reported. Apple stock slid in extended trading Monday and the Dow's Tuesday decline was weighed down by Apple, which fell almost 2%.

The revenue guide actually looked fine. Apple expects sales to grow 7% to 10% in the holiday quarter, ahead of the 6.1% LSEG consensus. Higher prices are helping: Apple raised iPhone prices by $100 across the board in June after signaling memory-supply trouble.

The squeeze is on the cost side. A global memory crunch, driven partly by AI data centers soaking up supply, pushed Apple's memory costs higher than in the June quarter. Ternus said the company "reluctantly" raised prices to offset component costs.

Now the product scorecard. iPhone revenue hit a September-quarter record of $57.58 billion, up 17% and above the $56.54 billion estimate. Mac sales jumped about 24% to $10.79 billion, beating the $9.61 billion forecast, helped by the low-cost MacBook Neo and the MacBook Pro.

The misses were just as clear. iPad revenue fell more than 10% to $6.22 billion, short of the $6.7 billion expected. Wearables, Home and Accessories dropped nearly 8% to $8.3 billion against $9.06 billion expected. Greater China grew 21% to about $17.5 billion, but analysts had been looking for roughly $18.55 billion.

Services is the quiet worry. Revenue of $31.57 billion matched forecasts, but growth came in under 10%, the slowest since 2022. Apple guided services growth of just 8% to 9% for the holiday quarter. Services is where Apple's profit margins live, so a slowdown there matters more than an iPad stumble.

"I think at this point, with everything we've achieved, it just feels like we've never been more confident that the best is yet to come." — John Ternus, CEO, Apple

Management's tone was confident. Ternus pointed to a packed launch schedule, including new iPhones, the HomeView smart-home display and the first touch-screen MacBook, which hasn't hit store shelves yet. He also hinted at how Apple may make money from AI: "hardware monetization," meaning the upgraded Siri becomes a reason to buy a new device rather than a paid subscription.

Here's where it gets interesting for investors. Apple spent just $2.24 billion on capex in the quarter, well below the $3.33 billion analysts modeled. While Big Tech peers pour hundreds of billions into AI buildouts, Apple is the light spender. That helps cash flow, but it also means Apple's AI story depends on selling devices, not renting compute.

The stock closed at $338.32 on Monday, down 1.83% ahead of the report, then dipped toward $335 in after-hours trading, Yahoo noted. Options traders had priced in about a 3.5% swing. The market now wants to see whether margin pressure is a one-quarter issue or the new normal.

The bull case is simple. Revenue growth is accelerating, the iPhone cycle is strong, Mac is booming, and a fresh CEO is launching products at a rapid clip. Analysts expect about $2.88 a share for the December quarter, per Nasdaq data cited by Yahoo.

The bear case is just as simple. Memory costs aren't going away, since SK Hynix has forecast a memory shortage until 2030. Price hikes can only go so far before they dent demand. Services is decelerating. And Apple's AI position is a hardware bet in a market obsessed with AI software and infrastructure.

For your portfolio, watch three things: whether the 45% to 46% margin guide holds or gets revised as memory prices move, whether Services growth stabilizes in the high single digits, and whether China recovers after this quarter's shortfall. The December report, covering a full holiday season of iPhone 18 Pro sales, is the real test.

Bottom line: Apple's growth is fine. Its margins are the story now, and the stock will trade on them.