Chip costs squeeze Apple profits

Apple shareholders faced a new cost headwind on Monday as the company warned that rising memory chip prices will reduce profit margins. The warning came despite a quarter in which the firm beat analyst expectations for both earnings and sales. Apple shares dropped 2.75% in after-hours trading on Wall Street following the announcement.

Three key points define the company's current financial position. First, memory chip prices rose sharply in the fourth quarter of 2026 due to high demand from artificial intelligence data centers. Second, Apple raised prices for iPads, MacBooks, and iPhones earlier this year to offset these increasing costs. Third, the company reported earnings of $30.71 billion for the period ending in September, a 12% increase from the same period last year.

John Ternus, who became CEO in September, described the memory price surge as unprecedented during an investor call. He noted that costs in the final quarter of 2026 are expected to exceed those of the previous three months. The industry has dubbed this supply squeeze RAMageddon. Ternus said that price increases implemented in June and September provided some offset against the mounting expenses.

Revenue for the July to September period reached $114.5 billion, up from $102.5 billion a year earlier. Earnings per share climbed to $2.10 from $1.85, a figure that included five cents from tariff refunds. These results surpassed the $113.4 billion in revenue and $1.99 per share in earnings forecast by analysts surveyed by FactSet.

Ben Barringer, head of technology research at Quilter Cheviot, characterized the results as OK but on the disappointing side. He attributed the revenue growth primarily to strong iPhone sales and demand for the Mac Mini, which users employ for agentic AI applications. Barringer noted that growth in China was strong, while performance for iPads and wearables lagged. Services revenue grew by 10%, which fell below the group's overall growth rate.

Jacob Bourne, an analyst at Emarketer, contrasted Apple's figures with recent disappointing results from Alphabet, Amazon, and Intel. He pointed to Apple's record iPhone revenue and solid Chinese expansion as evidence of business resilience. Bourne also highlighted the company's restrained approach to AI infrastructure spending, which has helped protect cash flow while rivals invest heavily. Partnerships with firms like Alphabet may strengthen Apple's AI capabilities without exposing it to similar financial risks.