Apple's Record Quarter Exposes the Rising Price of Memory and AI

John Ternus opened his tenure with $114.5 billion in revenue and a 17% iPhone gain, yet a 45% to 46% margin outlook shows how AI-driven memory costs are reshaping Apple’s economics.

Key Takeaways

• Revenue rose 12% to a record $114.5 billion and EPS climbed 14% to $2.10, beating forecasts, though tariff refunds lifted gross margin by a point and contributed $0.05 a share.
• Apple guided December-quarter sales up 7% to 10%, above consensus, but forecast gross margin of 45% to 46% as memory prices and Siri AI costs absorb the benefit of higher revenue.
• Greater China grew 21% yet missed estimates by $1.2 billion, Services slowed toward 8% to 9% growth, and shares, already 1.8% lower on the day, moved in a narrow range after hours.

The Strongest September on Record

Apple has closed the best year in its history with a quarter that says as much about its costs as about its customers. Revenue for the three months ended September 26 rose 12% to $114.5 billion, a September-quarter record, and diluted earnings per share increased 14% to $2.10, according to results the company filed with the SEC. Both measures cleared the consensus of $113.46 billion and $2.00, and revenue finished above the 9% to 11% growth range management had set in July. Fiscal 2026 sales reached $478.8 billion, up 15%, with earnings per share of $8.98, up 20%.

The headline flattered the underlying business by a measurable amount. Gross margin of 47.9% included roughly one percentage point from tariff refunds, which also added $0.05 to earnings per share. Without them, margin was close to 46.9%, below the 47.2% Apple reported a year earlier. These were the first results under John Ternus, the hardware veteran who succeeded Tim Cook as chief executive on September 1, with Cook moving to executive chairman. Apple announced the succession in April, and on the same day it named Johny Srouji chief hardware officer. After fifteen years under an operations specialist, Apple now has two engineers at its center. Ternus inherits a company whose customers are spending more than ever, at the same moment that the parts inside its devices are becoming harder and costlier to secure.

An iPhone Year, Built Partly on Price

iPhone revenue rose 17% to $57.58 billion, just over half of total sales and comfortably ahead of the $56.48 billion analysts expected. The iPhone 18 Pro and Pro Max reached stores on September 18, leaving barely a week of the new models inside the quarter, so the gain belongs largely to the iPhone 17 cycle, record upgrade activity and higher prices. Ternus said research firms reported share gains for Apple during the period. The Mac was the quieter success, rising 24% to $10.79 billion against expectations near $9.7 billion. That extended a run management attributed in July to the lower-priced MacBook Neo.

Where supply was tight or comparisons demanding, the numbers softened. iPad revenue fell 10% to $6.23 billion, which Chief Financial Officer Kevan Parekh linked to supply constraints and a strong prior-year launch, while Wearables, Home and Accessories declined 8% to $8.30 billion. Both fell short of forecasts. The autumn lineup Ternus described on the call was unusually broad: a MacBook Pro that brings touch to the Mac for the first time, Apple Watch Series 12, AirPods 5 and a new home range led by HomeView. Yet the device most likely to shape sentiment over the next six months appears nowhere in these figures. The $1,999 foldable iPhone Duo went on sale on October 23, after the quarter closed. Its reception, alongside the first full holiday season for the iPhone 18 Pro, will define a December quarter that Apple expects to be the largest in its history.

Memory Prices Set the Terms

Apple’s guidance carried the evening’s most important information. Parekh forecast December-quarter gross margin of 45% to 46%, citing higher memory costs and the expense of ramping Siri AI, the rebuilt assistant that entered beta in September. Excluding tariff refunds, he said, September-quarter margin would have declined about a point from June, with memory the principal cause. Apple has now received most of those refunds, so coming quarters will show memory inflation without that cushion. The pressure originates far from Cupertino. Investment in AI data centers has absorbed DRAM and flash supply across the industry, a squeeze Cook had likened to a “100-year flood.” Product gross margin stood at 37.2%, while Services, at 76%, remains the ballast.

What we are seeing with memory pricing right now is unprecedented.

Operating expenses add a second layer. They rose 21% to $19.2 billion and are guided to $20.4 billion to $20.8 billion for December as AI spending continues. Applied to last year’s $143.8 billion December quarter, the revenue outlook implies sales of roughly $154 billion to $158 billion, above the consensus near $152 billion. Carry the guided midpoints through to the bottom line, however, and implied earnings land at about $2.88 to $2.89 a share, essentially where analysts already were. Apple is forecasting more revenue than the market expected and no more profit. For a company long valued on its ability to convert scale into margin, that is a meaningful change in shape.

China and Services Lose a Step

Greater China revenue rose 21% to $17.54 billion, the fastest growth among Apple’s major regions, yet fell about $1.2 billion short of the $18.75 billion analysts expected. iPhone sales there still grew at a double-digit rate, Parekh said, but the miss interrupts a recovery narrative that gathered force in July. That month, China’s Cyberspace Administration registered Apple Intelligence, with Alibaba and Baidu as local partners. The approval matters more for the next upgrade cycle than for this one. Until its AI features reach Chinese buyers at scale, Apple competes in its most contested market against domestic brands that built AI into their handsets well before it could.

Services revenue rose 10% to an all-time high of $31.57 billion, in line with forecasts. Video, cloud, payments and advertising all set records, and paid subscriptions passed 1.5 billion. The December outlook of 8% to 9% growth, weighed down by third-party licensing and foreign exchange, extends a gradual slowdown in the business that supplies Apple’s most dependable profit. Licensing has historically included Google’s payments for default search placement, which leaves part of that line exposed to decisions made elsewhere. Pricing has therefore become the lever Apple reaches for first. It raised iPhone 17 prices by $100 and lifted some MacBook prices alongside the iPhone 18 Pro launch. Ternus told Reuters the increases “provided some offset” to memory costs, and he said Apple had raised them reluctantly.

Ternus Inherits the Harder Question

The market treated the report as largely anticipated. Apple shares fell 1.83% to $338.32 in Monday’s regular session, retreating from record highs above $351 the previous week. They then traded between $332 and $340.90 after the release, about 1% lower at points, while options had priced a move of roughly 3.5% in either direction. Apple has been trading places with Nvidia as the world’s most valuable company at close to $4.9 trillion, near 40 times trailing earnings, so a clean beat was already in the price. The margin guide was the real test, and the muted response suggests investors had absorbed much of it after July’s warning. Bulls will point to a revenue outlook that beat expectations; skeptics will note that it adds no earnings.

For Ternus, the first quarter frames the argument his tenure will have to win. Apple is selling more devices at higher prices into an installed base of more than 2.5 billion active devices. It returned $28 billion to shareholders in the quarter, including $24 billion in buybacks, held its dividend at $0.27 a share and ended with $137 billion in cash and marketable securities against $80 billion of debt. The balance sheet is not the constraint. What remains unresolved is whether the iPhone Duo, Siri AI and pricing power can steady margins once tariff refunds fade and memory contracts reset higher. The December quarter will offer the first serious answer.