Apple gets squeezed

Between the nearly three-month wait for its new foldable iPhone and the debut of its first touchscreen MacBook, Apple has had plenty of reasons to take a victory lap lately, and its latest earnings added to the list.

In John Ternus’ first earnings report as CEO, Apple delivered record quarterly revenue of $114.5 billion, up 12% from a year earlier and ahead of Wall Street’s expectations. EPS rose 14% to $2.10, also beating estimates. Among the highlights:

• iPhone sales jumped 17% to $57.6 billion, fueled by strong demand for the premium iPhone 18 Pro lineup.
• Services revenue reached a record $31.6 billion, helped by Apple’s growing ecosystem of subscriptions and digital offerings.
• Greater China revenue surged 21%, a welcome sign of strength in a market where Apple has faced fierce competition from domestic rivals.

And unlike its Magnificent Seven peers, Apple has largely resisted Silicon Valley’s AI spending frenzy, focusing on AI features built into its devices rather than pouring hundreds of billions into data centers.

But that wasn’t enough for investors: Shares fell 1.90% today, as Apple warned that rising memory-chip prices would squeeze profit margins during the crucial holiday shopping season.

Apple’s Siri-ous problems

As AI companies compete for memory chips to power their data centers, suppliers are prioritizing more lucrative AI-related products, driving up costs for consumer electronics makers. Ternus described the memory-pricing environment as “unprecedented,” and Apple expects gross margins to fall to between 45% and 46% this quarter from 47.9% last quarter (although that number also benefited from tariff refunds).

Apple has another problem: Its most recognizable AI offering is still…Siri.

While rivals like Google and OpenAI have raced ahead with increasingly sophisticated chatbots, Apple’s longtime assistant has struggled to keep up. The company launched a revamped, AI-powered Siri in September, with plans to introduce more advanced features and eventually charge heavy users for additional AI access. But getting people to pay for Siri might be tricky when its responses have ranged from mildly helpful to downright weird.

A split decision

As investors weigh Apple’s strong sales against its growing list of challenges, Wall Street analysts are split on where the stock goes next.

• Argus Research: Raised its price target from $375 to $400 and maintained a Buy rating, pointing to strong iPhone sales and an upbeat holiday outlook despite rising component costs.
• Morgan Stanley: Trimmed its price target from $355 to $350 but maintained an Overweight rating, citing Apple’s pricing power and strong product lineup while flagging slowing services growth.
• KeyBanc: Maintained its Underweight rating and $250 target, arguing that slowing hardware demand and weaker services growth leave Apple extremely overvalued.

Apple still expects holiday-quarter revenue to grow 7% to 10%, but it has to prove that sales can offset rising costs. And as investors grow increasingly wary of Big Tech’s AI spending spree, Apple may end up enjoying the fruits of its restraint.—SY