Apple delivered a mixed earnings report: despite a double-digit decline in global smartphone shipments in the third quarter of this year, iPhone revenue exceeded Wall Street expectations, driving overall revenue growth above forecasts; however, performance in the key overseas market of China fell significantly short of expectations, and the growth rate of service revenue further slowed.
More importantly, management voluntarily disclosed forward-looking guidance on the earnings call: the pressure from high memory costs will continue to intensify over the next several quarters, and gross margins will decline further.
On Monday, November 2, after the close of U.S. markets in Eastern Time, Apple reported that for its fourth fiscal quarter ended September 26, 2026, revenue increased 11.7% year-over-year to $114.477 billion, surpassing Wall Street’s expectation of approximately $113.47 billion and exceeding Apple’s prior guidance of 9% to 11% growth. Diluted earnings per share (EPS) rose approximately 14% year-over-year to $2.10, beating the market expectation of $2.00 by 5%.
The highlights of this earnings report still came from the iPhone and Mac. iPhone revenue increased 17.5% year-over-year to $57.583 billion, setting a new record for the September quarter and exceeding analyst expectations by over 1.9%; Mac revenue reached $10.792 billion, up 23.7% year-over-year and surpassing analyst expectations by over 11%. Services revenue amounted to $31.573 billion, a new quarterly high, but remained nearly flat and slightly below the market expectation of $31.58 billion, with year-over-year growth slowing further to under 10%, the lowest pace in over three years.
Profit margins were also strong, but benefited from one-time factors. Apple’s gross margin for the fourth fiscal quarter was 47.9%, the lowest in a year, with approximately 1 percentage point attributable to favorable impacts from tariff refunds under the Trump administration; EPS also included about $0.05 from tariff refund contributions. Excluding this factor, Apple’s earnings still exceeded expectations, but the beat was more modest.
When the earnings report was released, Apple’s stock, which had already fallen over 1.8% during Monday’s trading session, initially rose 0.4% in after-hours trading before quickly reverting to a decline, falling nearly 2%, then briefly turning positive, before falling again and dropping over 4% in after-hours trading. The post-market volatility indicates that investors did not view the report as poor, but rather that valuations and expectations had already been elevated. Investors were particularly sensitive to factors such as Greater China revenue falling nearly 6.5% below analyst expectations, weak performance from iPad and wearables, services revenue failing to exceed forecasts, and a gross margin boosted by a one-time tariff refund—all against the backdrop of high valuations and low tolerance for disappointment.
Before the earnings report, media noted that Apple’s stock had risen over 20% from its late-June low, adding approximately $1 trillion in market value over four months, with a forward P/E ratio of about 35x—nearly double that of the S&P 500—and at a historical valuation high. Oppenheimer analyst Martin Yang pointed out that Apple’s stock is currently trading at 36 times next year’s expected earnings, at a premium to the broader market, but its projected earnings growth is only 1%, slower than that of peer tech companies. He directly stated, “We believe the upside is insufficient to justify this premium,” emphasizing that Apple needs to revitalize iPhone sales growth and reverse the slowdown in its services business to warrant a more bullish outlook. At this valuation, the market’s expectation for the earnings report is not merely to “meet” expectations, but to deliver a nearly flawless performance.
Analysis suggests that Apple’s post-market decline reflected investors’ renewed scrutiny of its segment performance and the quality of its sustained growth amid high valuations. In other words, this earnings report confirmed that Apple’s fundamentals remain strong, but not strong enough to fully absorb the valuation pressure accumulated from its significant rise over the past several months.
Revenue and EPS both exceeded expectations, with full-year revenue reaching a record high.
Apple's total revenue for the fourth fiscal quarter was $114.477 billion, compared to $102.466 billion in the same period last year, representing an 11.7% year-over-year growth, a slowdown from the 16% growth in the third fiscal quarter. This performance exceeded market expectations and indicates that Apple has continued to maintain double-digit growth following the third fiscal quarter.
For the full fiscal year, Apple's revenue reached $478.834 billion in fiscal year 2026, a 15.1% increase from $416.161 billion in fiscal year 2025, setting a new all-time high for the company’s fiscal year. Full-year net profit was $132.175 billion, up 18% year-over-year; full-year diluted EPS was $8.98, up 20.4% year-over-year.
Apple CEO John Ternus stated that the company achieved record revenue for the September quarter, with iPhone reaching a September quarter record, and services business hitting an all-time high. He added that the company is entering the holiday season with its “most ambitious product lineup ever,” including the iPhone Duo, iPhone 18 Pro series, next-generation home hardware, the first Mac with Touch, and a completely new Siri AI.
CFO Kevan Parekh emphasized that Apple's net income and EPS for the fourth fiscal quarter both reached record highs for the September quarter, annual revenue hit an all-time high, and the active installed base of devices reached new highs across all major product categories and regions.
iPhone and Mac drive hardware growth, with the initial impact of the Duo cycle beginning to take effect.
In the fourth fiscal quarter, Apple's product revenue reached $82.904 billion, a 12.5% year-over-year increase, surpassing Wall Street's expectation of $81.85 billion, driven primarily by iPhone and Mac sales.
In the fourth fiscal quarter, iPhone revenue reached $57.583 billion, a 17.5% increase compared to $49.025 billion in the same period last year, slowing from the 22% growth rate in the third fiscal quarter but exceeding analysts' expectations of $56.49 billion. Apple executives had previously indicated on the third fiscal quarter earnings call that component supply constraints would impact iPhone performance in the fourth quarter, estimating that iPhone revenue growth could fall within the low-to-mid-teens percentage range. The final 17.5% growth demonstrates that demand for new models and premium devices offset part of the supply constraint pressure.
The market is particularly focused on the foldable iPhone Duo, which starts at $1,999 and represents one of Apple’s most significant iPhone form factor changes in recent years. Since the fourth fiscal quarter includes only a limited sales period following the product’s launch, this quarter’s data reflects only early demand; however, iPhone revenue exceeding expectations suggests at least a strong start to the new product cycle. Bloomberg previously noted that delivery times for the Duo have been pushed into next year, indicating coexisting supply constraints and strong demand; however, limited availability and some reports regarding screen durability may still affect purchasing momentum among non-early adopters.
Mac performed stronger. Mac revenue in the fourth fiscal quarter reached $10.792 billion, a 23.7% year-over-year increase, significantly exceeding the market expectation of $9.7 billion. This was one of the most notable upside surprises in the quarter’s earnings report, indicating that prior market concerns about supply constraints impacting Mac sales have been partially alleviated.
Despite strong consumer enthusiasm and demand so high that Apple’s supply chain struggles to keep up, management has acknowledged that it remains an open question whether consumers will slow their iPhone upgrade cycles if there aren’t compelling new features, especially as device prices continue to rise.
iPad and wearable devices are dragging down the hardware structure.
Not all hardware categories performed strongly.
iPad revenue for the fourth quarter was $6.229 billion, a 10.4% year-over-year decline, below the market expectation of $6.89 billion. Last quarter, iPad revenue still saw approximately 6% year-over-year growth; the shift to decline this quarter indicates pressure on the product category in terms of product launch timing, demand release, or comparison base.
Wearables, home, and accessories revenue amounted to $8.3 billion, a 7.9% year-over-year decline and below the market expectation of $9 billion. This segment, which includes the Apple Watch, AirPods, and home-related products, saw weak performance, making Apple’s hardware growth more reliant on the iPhone and Mac.
Therefore, although total product revenue exceeded expectations, the internal structure was uneven: iPhone and Mac significantly outperformed, while iPad and wearables fell notably short of expectations. This is one of the reasons the stock price failed to maintain its initial after-hours gain following the earnings announcement.
Service revenue reached a record high, but the growth rate hit its lowest level in over three years.
Apple's services revenue for the fourth fiscal quarter reached $31.573 billion, setting a new quarterly record, but slightly missed the market expectation of $31.58 billion. Year-over-year growth slowed to 9.8% from approximately 12% in the third fiscal quarter, marking the slowest growth since the second quarter of 2023.
Services have always been a key component of Apple's valuation due to their high gross margins, stable cash flow, and strong integration with its large installed base of devices. In the fourth fiscal quarter, the gross margin for services was approximately 76%, up from about 75.3% in the same period last year, continuing to significantly exceed that of hardware products.
However, management explicitly stated on the earnings call that the growth rate of the services business will continue to slow in the next quarter. This outlook is particularly concerning to investors because the slowdown in the services business is not a temporary issue but stems from structural pressures. Courts and regulatory bodies worldwide continue to restrict Apple’s ability to charge high commissions to developers on the App Store, which is the largest component of the services business. Even more notably, one of the previously major revenue sources from App Store fees—OpenAI’s ChatGPT app—has begun directing potential subscribers to pay directly through its website, bypassing Apple’s “toll booth,” following a rift between Apple and OpenAI over a trade secret dispute.
Service revenue for the third fiscal quarter was $30.74 billion, a 12% year-over-year increase; for the fourth fiscal quarter, revenue rose further to $31.573 billion sequentially, but the year-over-year growth rate slowed to approximately 10%. At a time when Apple’s overall valuation is at a historical high, the service business merely met expectations rather than significantly exceeding them, making it easier for investors to view this as a factor limiting further upward momentum in the stock price.
Greater China remained strong year-over-year, but came in 6.5% below Wall Street expectations.
Regionally, Apple recorded $17.539 billion in revenue in the Greater China region during the fourth fiscal quarter, a 21% year-over-year increase. On the surface, this remains robust growth, maintaining a year-over-year growth rate above 20% from the prior quarter. However, it represents the lowest quarterly growth rate in a year, significantly below Wall Street’s expectation of $18.75 billion and also lower than the $18.82 billion recorded in the third fiscal quarter. In other words, while revenue in the Greater China region continued to grow strongly year-over-year, it declined 6.8% sequentially—falling short of the optimistic market expectation of only a minor 0.4% sequential decline.
Apple's performance gap in China has a significant impact on its stock price. The Chinese market is both a key consumption hub for Apple's premium iPhones and a critical indicator for investors assessing global demand for the Duo and new product cycles. While the latest earnings report did not show weakening demand in Greater China, the fact that "high growth still fell short of expectations" is sufficient to trigger profit-taking in a high-valuation environment.
In the fourth fiscal quarter, Apple's revenue in most major regional markets exceeded expectations, with the exception of Japan. Revenue in the Americas reached $48.68 billion, a 10.2% year-over-year increase, compared to analyst expectations of $48.51 billion; revenue in Europe reached $32.008 billion, a 11.5% year-over-year increase, compared to analyst expectations of $30.21 billion; revenue in Japan reached $6.54 billion, a 1.4% year-over-year decline, compared to analyst expectations of $7.3 billion; revenue in other Asia-Pacific regions reached $9.71 billion, a 15.0% year-over-year increase, compared to analyst expectations of $9.02 billion.
Gross margin was boosted by tariff refunds, but high memory costs remain a genuine concern, with guidance for next quarter lowered to 45%–46%.
Apple's fourth-quarter gross profit was $54.82 billion, with a gross margin of 47.9%, higher than approximately 47.2% in the same period last year. The company disclosed that the gross margin for this quarter included a favorable impact of approximately 1 percentage point from tariff refunds, and diluted EPS also included a favorable impact of approximately $0.05.
This means that, excluding the impact of tariff refunds, Apple’s gross margin for the quarter was approximately 46.9%, lower than the reported figure and slightly below the year-ago level; EPS was around $2.05, still above the market expectation of $2.00, but the beat was significantly narrower.
CFO Kevan Parekh explicitly stated on the earnings call that memory costs were the primary driver of the gross margin pressure this quarter, and the impact of high memory costs will be even more significant next quarter. Apple had previously stockpiled components at lower prices, but this inventory is rapidly depleting, forcing the company to procure memory at higher prices going forward. As a result, Apple provided a gross margin guidance range of 45% to 46% for the December quarter. Parekh emphasized: “This primarily reflects the impact of higher memory costs, along with certain costs associated with the launch of Siri AI.” This guidance range represents a substantial decline of nearly 2 to 3 percentage points compared to the actual gross margin of 47.9% this quarter and is well below Wall Street’s prior expectations, directly triggering an accelerated drop in the stock price following the earnings call.
CEO John Ternus also issued a warning about profit margin prospects during the earnings call, confirming that pressure from high memory prices will persist over the next several quarters. This has prompted renewed scrutiny of whether Apple’s previous price increase strategy can effectively offset rising cost pressures.
On the expense side, Apple's operating expenses for the fourth fiscal quarter amounted to $19.189 billion, in line with expectations. Research and development expenses reached $11.73 billion, a 32.3% year-over-year increase; sales, general, and administrative expenses totaled $7.459 billion, up 5.8% year-over-year. The significant rise in R&D spending is likely tied to increased investments in new hardware form factors, AI features, Siri AI, and more on-device innovations, though it has resulted in operating profit growth slightly lagging behind revenue growth.
In the fourth fiscal quarter, Apple's operating profit was $35.631 billion, a 9.9% year-over-year increase; the operating margin was approximately 31.1%, slightly below the 31.7% recorded in the same period last year. For a mature giant like Apple, this remains an exceptionally high level, but the market will be watching: Can Apple continue to maintain its margin resilience amid increased investments in AI and new products?
Siri AI arrives late, new CEO under pressure
The new Siri AI is set to launch officially this quarter, but external evaluations have been pessimistic. Apple’s long-criticized voice assistant appears outdated even upon release—competitors like Instinct and Muse can already handle complex, multi-step tasks for users, while Siri remains limited to setting kitchen timers. The associated launch costs for Siri AI are already reflected in the pressure on next quarter’s gross margin guidance.
John Ternus, the new CEO, succeeded Tim Cook on September 1 of this year, becoming Apple’s third leader in its 29-year history. He took over a company whose market value has approached $5 trillion—Apple’s stock price briefly surpassed the $5 trillion mark multiple times during intraday trading, eventually closing above it before slipping back below. Ternus inherited not only the illustrious legacy left by Jobs and Cook, but also the immense market expectations that come with it. Apple previously commanded a premium as a “safe haven” amid the AI storm precisely because of its capital efficiency and abundant cash flow, allowing it to avoid spending hundreds of billions like its competitors to chase AI frontiers. However, if Ternus fails to accelerate Apple’s innovation engine, this “safe haven” premium will face real challenges.
Cash flow remains Apple's greatest advantage, with $86.4 billion repurchased for the full fiscal year.
Apple's cash flow performance remains outstanding. In fiscal year 2026, the company generated $145.097 billion in operating cash flow, an approximate 30% increase from $111.482 billion in the prior fiscal year. After deducting approximately $9.041 billion in capital expenditures, free cash flow rose about 38% year-over-year to $136 billion, continuing to rank among the top global tech giants.
Unlike Alphabet, Meta, and Amazon, which have seen pressure on their free cash flow due to investments in AI infrastructure, Apple continues to maintain a low-capital-expenditure model, which is one of the key reasons the market has viewed it as a "tech safe haven" over the past several months.
In terms of shareholder returns, Apple repurchased $86.39 billion in common stock and paid dividends and equivalents of $15.721 billion during the fiscal year, totaling approximately $102.1 billion returned to shareholders. Compared to the $90.7 billion in stock repurchases in fiscal year 2025, stock repurchases in fiscal year 2026 decreased by more than 4.7%.
For the entire fiscal year 2026, Apple’s shareholder returns amounted to $102 billion, reducing the ratio to free cash flow to approximately 75%, indicating a clear decline in shareholder returns compared to previous quarters, during which returns consistently exceeded free cash flow.
The Apple board also announced a cash dividend of $0.27 per share, payable on November 16 to shareholders of record as of the close of business on November 12.
As of the end of the fourth fiscal quarter, Apple had $36.305 billion in cash and cash equivalents, and a combined total of $100.63 billion in current and non-current marketable securities; commercial paper and short- and long-term debt totaled approximately $80.111 billion. Overall, Apple continues to maintain a net cash position with a strong balance sheet resilience.