Apple is forecasting robust holiday season sales, yet its services business outlook fell short of expectations.
On Monday, Apple said that "unprecedented" increases in memory chip prices, along with rising costs tied to running artificial intelligence (AI) tools, will pressure the company's profit margins, even though it expects better-than-anticipated sales during the critical Christmas shopping period.
The iPhone maker said it expects fourth-quarter sales to grow 7% to 10% year over year, surpassing Wall Street's forecast of 6%.
However, after Apple warned of rising component costs and offered a weaker-than-expected outlook for its high-margin services business, the company's shares fell about 3% in after-hours trading.
Apple expects its gross margin for the fourth quarter to land between 45% and 46%, below analysts' projection of 47%.
Apple CEO John Ternus pointed out that the data center construction boom is heavily consuming chip supply, leading to a shortage of memory chips. He said: "The memory chip price trajectory we are seeing right now is unprecedented."
For the three months ending in September, which is the final quarter of Apple's 2026 fiscal year, the company's sales performance remained solid, with revenue reaching $114.5 billion, beating market expectations.
Yet despite Apple setting a record in its 2026 fiscal year, investors remain more focused on its financial outlook for the Christmas shopping season.
Currently, consumers are absorbing recent product price increases, while the launch of the foldable iPhone Duo has encountered setbacks, including lengthy delivery delays and reports of screen cracking. Apple insists that the screen issue affected only a small number of devices.
Monday's earnings report is also the first since Ternus, Apple's former hardware chief, took over as CEO in September. He inherited Apple at a time when its revenue growth is slowing from the strong levels seen earlier this year, and the impact of rising memory chip costs is finally reaching this consumer electronics giant.
Melissa Otto, head of research at S&P Global's Visible Alpha, said: "I think Ternus is off to a somewhat slow start. The investment community may be asking: At Apple's current valuation level, is this the best we can achieve? Unfortunately, this is exactly what happened on the new CEO's first earnings call."
Otto also noted that given the deteriorating economic environment and higher living costs facing consumers, Apple's strong holiday sales forecast appears to have been "perfectly priced" by the market, leaving virtually no room for a miss.
Apple delivered solid third-quarter results, with iPhone revenue rising 17% year over year to $57.6 billion. Mac sales reached $10.8 billion, also beating expectations.
Revenue from Apple's services business, which includes the App Store, Apple Pay, and iCloud, came in at $31.6 billion, in line with market expectations.
But the company expects services revenue to grow 8% to 9% this quarter, far below Wall Street's forecast of 12%.
Apple's third-quarter net profit was $30.7 billion.
Apple's third-quarter gross margin was 47.9%, within its previous guidance range of 47% to 48%.
In September, Apple launched a new chatbot-style voice assistant, "Siri AI," powered by Google's models. But Apple noted that the additional cloud computing costs required to run the tool could also erode the company's profit margins.
Apple's results come as tech stocks have suffered a sharp decline over the past week. Disappointing earnings from Google, Amazon, and Intel triggered a market sell-off and intensified investor concerns about unconstrained spending in the AI sector.
Apple's shares, however, have bucked the trend and held firm. In the month before Monday's earnings release, the stock edged higher, with its market capitalization hovering around $5 trillion, competing with Nvidia for the title of the world's most valuable listed company.
Unlike other major tech companies, Apple has not invested heavily in data center infrastructure, which could make it a safe haven for investors worried about the AI investment boom.
Nevertheless, the Cupertino, California-based company is increasingly feeling pressure from a global shortage of semiconductor components, especially in memory chips. The data center construction boom has placed enormous supply strain on a handful of suppliers.
Data from market research firm Counterpoint Research shows that global smartphone shipments fell 20% in the third quarter, reflecting the impact of component shortages driving up prices. This trend has hit budget smartphone makers particularly hard.
The research found that despite the overall market contraction, Apple's third-quarter market share still rose from 18% to 22%, partly because it delayed iPhone price increases.
The iPhone 18 Pro and Pro Max released in September are priced about $100 higher than last year's models. In addition, Apple did not launch a full new-generation lineup simultaneously, instead postponing the cheaper base model to next year.
This makes direct comparisons with prior years' sales data more difficult and adds to the challenge for analysts forecasting holiday season performance.
Otto said that continued increases in memory chip prices remain a risk to Apple's earnings forecasts. She said: "Everyone thinks the memory chip market has peaked. But is that really true?"
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