Apple stock (NASDAQ: AAPL) fell in after-hours trading on Monday despite record sales, as the iPhone maker warned that memory-chip costs would squeeze profits during the holiday season.
Shares dropped 2.8% to $328.85 after closing the regular session 1.83% lower at $338.32. Apple reported revenue of $114.48 billion, up 12%, and earnings of $2.10 a share, beating Wall Street forecasts.
But management projected December-quarter gross margins of 45% to 46%, compared with 47.9% in September.
The warning shifts attention from iPhone demand to whether Apple can protect profitability as component prices rise.
Apple’s holiday-quarter outlook overshadows record sales
Apple’s September-quarter revenue exceeded analysts’ $113.39 billion estimate, while diluted earnings beat expectations of $1.99 a share. Net income reached $30.71 billion, and gross margin topped forecasts at 47.9%.
Yet investors focused on what happens next. Management expects revenue to grow 7% to 10% in the December quarter, potentially setting another company record, but predicts a smaller share of sales will remain after production and service-delivery costs.
Part of the apparent margin decline has an accounting explanation: September’s figure benefited by roughly one percentage point from tariff refunds. However, even stripping out that temporary boost, management expects profitability to weaken.
“The big question for Apple moving forward will be how well they can weather the significant component price increases,” TECHnalysis Research analyst Bob O’Donnell told Reuters.
O’Donnell also flagged production and display issues affecting the new foldable iPhone Duo. The device launched after September and therefore contributed nothing to the reported quarter.
The concern is that full order books cannot guarantee full margins if Apple must pay considerably more to build each device.
AI’s memory boom becomes an expensive problem for Apple
The artificial intelligence boom has increased demand for memory in data centres, tightening supplies of components also used in phones and computers. That has improved conditions for chipmakers while raising costs for electronics manufacturers.
Apple chief executive John Ternus called the current memory-price increases unprecedented on Monday’s earnings call. He expects them to worsen during December and beyond.
Apple has raised some iPhone, Mac and iPad prices, negotiated savings elsewhere and carried inventories bought at lower prices.
Manufacturing purchase commitments rose by $33 billion between June and September as the company worked to secure supplies; that is not cash already spent or an amount exclusively earmarked for memory.
Citi analyst Atif Malik warned in September that Apple faced “incremental pressure on gross margin”, according to Investing.com. Citi projected a 140-basis-point hit in calendar 2026, a forecast issued before Monday’s results.
The situation illustrates Apple’s dilemma, as customers may accept higher device prices, but every increase risks weakening demand. Its Siri AI rollout will also add cloud costs, tightening the balance between sales growth and profitability.
Can iPhone sales and services cushion the squeeze?
iPhone revenue climbed 17% to $57.58 billion in September, while Mac sales reached $10.79 billion. Services generated a record $31.57 billion, giving Apple a valuable stream of recurring revenue.
Still, management expects Services growth to slow to 8% to 9% in December, below Wall Street’s roughly 10.7% estimate. Greater China sales rose 21% but missed forecasts, while constrained iPhone Duo production could delay further revenue.
Gene Munster of Deepwater Asset Management argued on CNBC’s Fast Money on Monday that AI-ready Macs could drive a multiyear upgrade cycle. He expects Apple to stabilise margins through pricing, but cautioned that “the demand side is the harder piece.”
That argument depends on consumers continuing to upgrade despite higher prices. Premium models, recurring services and efficient procurement could protect profits, but weaker sales or further chip inflation would leave Apple less room to manoeuvre.
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