Focusing on the U.S. stock market's second-quarter fiscal 2026 earnings, Apple (AAPL) reported third-quarter earnings that exceeded expectations, with total revenue reaching a massive $109.4 billion.
Apple's revenue growth rivals that of tech giants heavily investing in AI, yet the company has not followed the trend of spending big. On Friday morning, Apple's stock price plunged 9.5%. Investors set aside the quarter's strong performance, focusing instead on potential future growth slowdown, tightening supply chains, and the renewed erosion of gross margins due to rising memory chip prices. If the decline holds through the close, it will mark Apple's worst single-day drop since April 3, 2025.
Where to start
In the fiscal quarter ending June, Apple's total revenue surged 16% to $109.4 billion. iPhone sales rebounded 22% and Mac revenue grew 29%, serving as the primary drivers. Earnings per share rose 29% to $2.02, significantly beating Wall Street expectations. The company's overall gross margin for the quarter was 50.1%, meaning that after deducting direct production costs for hardware and services, it retained over half of every dollar in revenue. This impressive figure requires a note: tariff refunds boosted the gross margin by about 2 percentage points. Excluding this one-time benefit, the real underlying gross margin was approximately 48.1%. Even without the tariff benefit, Apple still managed high growth combined with high profitability, without incurring the massive spending on AI infrastructure seen by its peers. Bloomberg and Yahoo Finance, based on AlphaSpace data analysis, report that revenue surged 16% and gross margins exceeded 50%.
Why just 10 ASX 200 shares?
Microsoft, Google's parent company Alphabet, Meta, and Amazon are spending hundreds of billions of dollars on chips, building data centers, and arranging power infrastructure. These heavy investments are already yielding returns: Microsoft set a record with $41 billion in capital spending in a single quarter, boosting Azure cloud growth. Google Cloud has also recently seen accelerated growth and improved profit margins. However, as capital expenditures for these tech giants continue to swell, Apple has chosen a distinctly different path. This approach is cheaper, but not cost-free. Due to currency fluctuations and supply chain shortages further impacting iPhone, Mac, and iPad availability, Apple expects revenue growth for the September quarter to slow to 9%-11%. Gross margins face greater pressure. The company's guidance range for gross margin is 47%-48%, with tariff refunds still contributing a 1 percentage point benefit. Excluding the refund, the core gross margin is roughly only 46.5%. Management stated that compared to the 48.1% base gross margin in the June quarter, the entire decline this quarter is due to rising memory chip prices. Apple predicts storage costs will continue to rise this quarter and will keep increasing after September.
Apple's research and development spending surged 32% to $11.7 billion, clearly showing the company is not skimping on AI. Apple employs a model combining on-device computing, self-built servers, and rented third-party cloud resources, rather than emulating competitors by building massive public cloud systems. CEO Tim Cook acknowledged that the long-term rollout of Siri artificial intelligence could eventually increase Apple's capital expenditures. For now, the costs of this investment, and whether Apple can offset these expenses through iCloud paid upgrades, remain uncertain. The earnings report clearly shows the drivers of Apple's current growth cycle: a strong rebound in iPhone sales offset a slowdown in services business growth. Bloomberg and Yahoo Finance, based on AlphaSpace data, note that services revenue grew 12%, falling short of market expectations. Hardware led the growth, with iPhone posting its third consecutive quarter of significantly faster growth than the services segment. Now, rising storage costs are squeezing hardware profitability, and Apple is relying on Siri artificial intelligence to create a new hardware upgrade cycle. As Cook stated: "The current memory chip price surge can be described as a once-in-a-century extreme event."
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