Apple’s $5 Trillion Test: Services Slow as Memory Costs Rise

By Rebecca Stone

Apple generated $114.5 billion in revenue during its September quarter, up 12% year over year and $1.1 billion above expectations, as slowing Services growth and memory-led margin pressure undercut an otherwise strong report.

Reported earnings per share increased 14% to $2.10, beating expectations by $0.11; the result included $0.05 per share from tariff refunds. Shares slipped after the release as investors focused on Apple’s weaker margin guidance.

What does the product mix show?

The quarter’s growth was uneven across Apple’s biggest businesses.

• iPhone: Revenue rose 17% to $57.6 billion, beating expectations despite supply constraints.
• iPhone Duo: The foldable iPhone launched in October, so its early sales will land in Q1 FY27 rather than the September quarter.
• Mac: Revenue climbed 24% to $10.8 billion, comfortably ahead of consensus.
• Greater China: Revenue rose 21% to $17.5 billion, although that result landed roughly $1 billion below expectations.
• Services: Revenue reached a record $31.6 billion, but year-over-year growth eased from 12% in Q3 to 10%. Apple expects another slowdown to 8%–9% during the December quarter, citing licensing, currency and App Store headwinds.

For years, Apple kept hardware prices relatively stable, widened its installed base and earned high-margin revenue from Services. That model now faces a two-sided squeeze: rising memory costs are forcing price increases across the product lineup just as Services growth cools.

Management said it was “still too early to determine how customers will respond.” New CEO John Ternus called memory pricing “unprecedented,” sharpening the operating risk around the hardware-and-Services model that has sustained Apple’s margins.

Why did the margin outlook fall?

Gross margin fell to 48% from 50% in Q3. Tariff refunds supported both quarters, but their contribution declined from two percentage points of margin in the earlier quarter to one point in the September quarter.

Even without those refunds, gross margin fell by roughly one percentage point, largely because memory costs rose. Apple expects gross margin to decline further to 45%–46% in Q1 FY27, below the roughly 47% consensus.

The combination matters more than the modest EPS beat: Apple’s hardware gross profit is absorbing higher component prices while Services, the main high-margin offset, grows more slowly. Management’s holiday guidance nonetheless calls for 7%–10% revenue growth, above the roughly 6% consensus, supported by the new iPhone lineup.

What does the supply chain signal?

Apple’s manufacturing purchase commitments increased by $33 billion in a single quarter as the company secured components. That inventory build could leave Apple carrying more inventory and demand-forecasting risk than usual, despite its historically flexible supply chain.

Advanced chip shortages are easing, but memory constraints could continue limiting Mac and iPad production. Apple has secured components at a larger scale, yet the commitments have increased its exposure if customers resist the price increases management says memory costs require.

The new Siri AI adds infrastructure costs before meaningful monetization begins. Management confirmed plans eventually to offer paid access to higher usage limits, though pricing and customer adoption remain uncertain, leaving the service’s contribution to Apple’s AI strategy unsettled.

Can a $5 trillion valuation absorb slower growth?

Apple briefly reclaimed the title of the world’s most valuable company at a $5 trillion valuation as investors treated it as a safe haven from the AI infrastructure spending boom. That premium comes with expectations: shares trade at roughly 35 times forward earnings, a historically elevated multiple.

Apple may have avoided the massive AI infrastructure spending race, but it still faces slowing growth, rising costs and pressure on profitability. TradingView author moonypto wrote that they were waiting for a correction and taking profit, a sentiment that captures the tension between Apple’s operating momentum and its valuation.

The next test is whether Apple can raise device prices without weakening iPhone demand as memory costs squeeze hardware margins; with commitments up $33 billion in one quarter and Mac and iPad output potentially constrained by memory, pricing and supply execution will determine whether its premium multiple holds.