Why Is the Stock Falling? Apple Investors Were Caught Off Guard
✦ Why the Stock Slipped: Three Reasons
Each one gets its turn below
Apple released its results and next-quarter outlook after the US market closed on November 2. During the conference call, the stock fell about 4% at one point, then pared the drop to about 2% in after-hours trading.
Reading that, you might wonder whether Apple's results were weak. If anything, they were the opposite. Apple turned in record-breaking numbers.
✦ The September Quarter at a Glance
Fiscal 2026 Q4, the quarter ended September 26, 2026
Revenue for the September quarter of fiscal 2026 was $114.48 billion, up 12% from a year earlier. Net income was $30.7 billion, and diluted EPS was $2.10. That's a quarterly record.
The market had expected $113.39 billion in revenue and EPS of $1.99. Even if you take the 5-cent tariff refund effect out of EPS, it was $2.05, higher than the market expected. That's a perfectly good result. Yet after the report, Apple's stock slid anyway.
iPhone revenue was $57.6 billion, up 17%, and Mac grew 24% to $10.8 billion. Services revenue was an all-time high at $31.6 billion too. iPad, though, fell 10%, and Wearables, Home and Accessories fell 8%.
Greater China (mainland China, Hong Kong and Taiwan) revenue was $17.54 billion, short of analysts' $18.58 billion estimate. Still, it was up 21% from a year earlier, a record for a September quarter.
Some products sold well and others fell short of expectations, but it was a decent showing overall.
✦ Record Results, but the Stock Fell
Nasdaq regular-session closes (US Eastern time), USD, 12 trading days
Then again, the stock market doesn't seem to care much about a report card for a quarter that's already over. It's worried about profitability in the coming year-end shopping season.
iPhones are selling well, but investors are fixating on two things: memory and other component prices are climbing fast, and growth in the high-margin services business is slowing.
Memory Prices Are Weighing on Profit
What the market is worried about is Apple's cost of buying memory. iPhones and Macs contain DRAM, which quickly handles the data you're working on, and NAND flash, which stores photos, videos and apps.
✦ How AI Demand Squeezes Memory Supply
Why memory for phones and PCs is getting pricier
But AI data centers are buying server memory in bulk, so memory makers are giving more production capacity to the higher-margin server products.
The knock-on effect is that supply of the memory that goes into smartphones and PCs is getting tight, and prices are rising.
TrendForce, a market research firm, forecasts that in Q4 2026, general-purpose DRAM contract prices will rise 10% to 15% from the previous quarter, and NAND flash prices 15% to 20%.
That doesn't mean the memory Apple actually buys will go up by the same percentage, but it's true that cost pressure is growing across smartphone makers as a whole.
Apple CEO John Ternus also described the recent memory price trend as an 'unprecedented situation.' He expected memory costs to be even higher next quarter, and said purchase prices would keep rising after that.
Right now, inventory secured earlier at lower prices is softening some of the hit, but once that stock runs out, the burden of buying expensive memory anew gets heavier.
✦ Good to Know
So what is gross margin?
This change showed up directly in the gross margin outlook. Apple's September-quarter gross margin was 47.9%, but that included a tariff refund effect of about 1 percentage point.
Excluding the refund effect, September-quarter profitability was about 1 percentage point lower than the June quarter, and Apple named rising memory costs as the main cause.
Honestly, you might be thinking, 'Profitability dropped by a mere 1%? What's the big deal??' But the outlook matters more. Apple expects December-quarter gross margin of 45% to 46%.
Compared with the September-quarter level excluding the refund, the midpoint of that outlook is about 1.4 percentage points lower. The CFO explained that most of the decline comes from higher memory costs.
✦ Apple's Purchase Commitments
Supplier and manufacturing-related, as of September 26
To secure memory, Apple increased its purchase commitments with suppliers and for manufacturing. As of September 26 they stood at $89.7 billion, and $82.7 billion of that is due within the next 12 months. That's $33 billion more than at the end of June.
These cover not just memory but also displays, cameras and other components, plus manufacturing costs. It means Apple has made bigger commitments to lock in supply, but when component prices are rising, that makes the cost burden heavier.
Services Growth Is Slower Than Expected, Too
Another pillar holding Apple up is its services business. It includes the App Store, iCloud, Apple Music, advertising and cloud services.
Services revenue in the September quarter was $31.6 billion, up 10%, and it hit an all-time high. Its gross margin was 76%, far higher than the 37.2% for products. But Apple's outlook for December-quarter services growth was only 8% to 9%.
✦ Apple's Services Revenue Growth
September quarter vs. the December-quarter outlook
That's below September's 10%, and below the 10.7% market estimate Reuters cited. Apple pointed to third-party content and licensing deals and currency effects as the main causes.
Weak mobile gaming and changes to how the App Store business operates in some countries remain a drag too.
iPhone sales are growing, which lifts hardware revenue, but if growth slows in the high-margin services business, it could put the brakes on overall profitability improvement.
Investors seem to think this services outlook, along with memory costs, played a part in the stock's drop.
✦ Valuation: Forward P/E
Based on expected earnings over the next 12 months, November 3, compiled by Reuters
In fact, Apple stock was already richly valued before the earnings came out. On November 3, the forward price-to-earnings (P/E) ratio, based on expected earnings over the next 12 months, was about 35, as compiled by Reuters.
Alphabet's was 18.23 and Microsoft's was 23.43.
The market had been giving Apple a premium, expecting it to keep delivering strong growth and profitability. Under those conditions, even when revenue and EPS beat expectations, once a forecast of lower margins ahead appears, the stock can wobble.
Opinions in the market are split. Profit itself clearly grew. It's just the margin that's falling. So right now we're in a stretch where you could explain the stock going up or down.
As it turned out, the stock is weak, so investors seem to be putting more weight on the idea that margins are falling.
This isn't investment advice. You know that, right? Let's each protect our own hard-earned money.
That's all for this post. See you next time.
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🌐 Korean version: 아이폰도 잘 팔리고 역대급 실적을 냈는데... 애플 주가는 왜 이래?
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