Apple shares fell 1.6% Tuesday despite reporting better-than-expected revenue as traders zeroed in on rising costs – fearful that an AI-driven surge in chip prices could hit growth.
The iPhone maker recorded $114.8 billion in revenue – beating Wall Street estimates of $113.9 billion and up 12% from $102.5 billion in the same period last year. Revenue for the iPhone, in particular, hit $57.58 billion, also above expectations of $56.54 billion.
But sales in its iPad, wearables and services divisions missed estimates. Revenue on iPads of $6.23 billion missed estimates of $6.99 billion; wearables revenue of $8.3 billion also came in below $8.95 billion; and services revenue of $31.57 billion fell short of $31.59 billion.
The tech giant also forecast a gross margin of 45% to 46% in the crucial holiday quarter, falling short of estimates of 46.3% to 47% – and spooking investors who took it as a sign that Apple is bracing for a growth slowdown.
Ben Barringer, head of technology research at Quilter Cheviot, wrote in a note that while Apple’s gross margins reached 47.9% in the fourth quarter, it was partially due to tariff benefits, which will eventually cease, while memory chip costs will continue to pose a challenge.
“Where investors were left wanting was in the margin,” Ben Barringer, head of technology research at Quilter Cheviot, wrote in a note. “Once those tariff benefits roll off, the margin will get hit and as such the guidance is for that to decline.”
In June, Apple hiked prices across a slew of its products – including MacBooks, iPads and home devices – by as much as $500, blaming a surge in demand for memory chips as tech giants rush to build out their AI capabilities. The company also raised prices on its iPhones by $100.
Its fourth-quarter earnings report includes just eight days of new iPhone 18 Pro sales, one of its latest releases. Investors will have to wait for sales figures of the new iPhone Duo, which has a jaw-dropping price tag of nearly $2,000 and got off to a shaky start, with cracked and glitching screens.
Despite concerns around growth, John Ternus – who took over from longtime CEO Tim Cook in September – praised the results and called it Apple’s “best fiscal year ever.”
However, he also noted that memory costs were even higher this quarter than they were in the June period, another warning sign of possible margin troubles to come.
The Nasdaq rose 0.8% Thursday even after the disappointing Apple results. Traders tried to bounce back from a sell-off over the past few weeks after several tech giants reported steep AI spending, sending the major stock index close to correction territory.
Apple shares are up 22.9% so far this year, trading at a premium compared to other large tech stocks like Amazon and Microsoft – meaning there’s little room for error and investors are quicker to react from warning signals in the iPhone maker’s earnings.