Apple shares slide as higher memory costs fuel margin concerns

Apple Shares Slide Amid Margin Concerns from Higher Memory and AI Costs

Apple Faces Margin Pressure from Rising Costs and AI Investments

Premarket Stock Reaction and Investor Concerns

Nov 3 (Reuters) - Apple shares fell about 4% in premarket trading on Tuesday after the tech giant warned that rising memory costs would squeeze gross margins, stoking investor concerns over persistent supply-chain uncertainties and mounting AI expenses.

CEO Commentary on Memory Pricing and Cost Outlook

John Ternus delivered his first earnings report as Apple CEO on Monday, describing the memory-pricing environment as "unprecedented" while expecting costs to rise beyond the quarter ending in December.

The iPhone maker has benefited from using memory purchased at lower prices, but that advantage is expected to diminish over time, leaving more of its purchases exposed to higher prices.

Impact on Gross Margins

Gross margins, which measure the percentage of revenue retained after the costs of making its products, was 47.9% for the September quarter, down from June-quarter levels even when factoring in the impact of tariff refunds.

AI-Powered Siri and Margin Guidance

Apple expects gross margin for the December-ending quarter to range between 45% and 46%, which also reflects the expenses tied to the ramp-up of its AI-powered Siri.

Market and Analyst Reactions

Product Pricing and Consumer Impact

The CEO comments imply "Apple products are going to become even more expensive, which is not ideal at a time when the consumer is feeling the pinch from a higher cost of living," said Dan Coatsworth, head of markets at AJ Bell.

iPhone Revenue and Sales Performance

However, Apple reported a record September quarter for iPhone revenue despite price increases and a staggered iPhone release schedule where only the premium 18 Pro models were launched in the last days of the company's fiscal 2026.

Fourth-quarter iPhone sales, which included iPhone 18 Pro models but not Duo, were $57.58 billion, above estimates of $56.54 billion, according to data compiled by LSEG.

Analyst Perspective on Apple's Ecosystem

"We see the flagship iPhone as the linchpin of this ecosystem, from which Apple derives pricing power, switching costs, and a network effect," said William Kerwin, senior equity analyst at Morningstar.

Market Value and Valuation Metrics

Apple is set to lose over $170 billion in market value from its $4.94 trillion valuation if losses hold.

The stock trades at nearly 35 times expected earnings over the next 12 months, compared with 18.23 times for Alphabet and 23.43 times for Microsoft .

(Reporting by Harshita Mary Varghese in Bengaluru; Editing by Devika Syamnath)