To The Moon

Apple $Apple(AAPL)$ delivered a stronger-than-expected fiscal fourth quarter, but its shares fell in late trading after the company issued a disappointing gross margin forecast, citing surging memory costs and accounting headwinds from its artificial intelligence push.

Revenue for the September quarter climbed 11.7% to $114.48 billion, beating consensus estimates and setting a record for the period. Net income rose 11.8% to $30.71 billion.

Despite the top-line beat, the stock dropped 2.75% in after-hours trading. The culprit: Apple projected gross margins of 45% to 46% for the holiday quarter, falling short of the 46.7% average analyst estimate.

Greater China and Premium Pricing Drive Sales

The revenue beat was underpinned by two key factors: a rebound in Greater China and a strategic shift toward higher-priced hardware.

Greater China revenue surged 21% year-over-year to $17.54 billion, ending a two-year slump. The growth came even as the broader Chinese smartphone market contracted 15%. Apple's active installed base in mainland China reached an all-time high, management said on the earnings call.

Meanwhile, iPhone revenue jumped 17.5% to $57.58 billion, despite third-party data indicating a slight decline in unit shipments. Growth was driven almost entirely by a richer product mix. Apple skipped its traditional base model this fall, launching the iPhone 18 Pro at a $100 premium and a new foldable iPhone Duo starting at $1,999. This pushed the average selling price (ASP) above $1,000 for the first time. Mac sales followed a similar trajectory, rising 23.7% on the back of higher-end MacBook Pro models.

Memory Costs and Tariff Refunds

While Apple's reported gross margin of 47.9% looked robust, it included a roughly 1 percentage point boost from U.S. tariff refunds, according to the company’s Chief Financial Officer. Excluding this one-time benefit, underlying hardware margins actually contracted sequentially.

The CFO attributed the decline almost entirely to rising memory costs. Though Apple leaned on cheaper legacy inventory and cut non-memory component expenses, it failed to fully offset the surge. Management described the current memory pricing environment as "unprecedented" and warned that cost pressures will mount as the low-cost inventory is depleted.

To shield itself from supply chain disruptions, Apple has moved aggressively to stockpile components. Manufacturing purchase commitments jumped by $33 billion from June to September, with inventory rising from $11.1 billion to $14.5 billion.

Siri AI’s Hidden Bill: The Mismatch Between Immediate Costs and Deferred Revenue

The margin guidance also reflects a structural shift in how Apple accounts for its AI investments.

As users interact with the new Siri AI, Apple incurs immediate cloud inference costs that must be recognized in the current cost of services. However, the revenue from the AI-enabled hardware bundled into the iPhone is deferred and recognized over the device's lifecycle. This mismatch between immediate expenses and deferred revenue is directly dragging down near-term margins.

Despite these headwinds, Apple continues to operate as a cash-generating juggernaut. The company allocated $86.39 billion to share repurchases and $15.72 billion to dividends for the full year, backed by $145.1 billion in operating cash flow.

Notably, Apple remains an outlier in capital expenditures among its mega-cap peers; full-year CapEx was just $9.04 billion, a fraction of the hundreds of billions being spent by Microsoft and Amazon on AI infrastructure.

FY26Q4 earnings data

Total Revenue: $114.5B (+12% YoY)

Record September quarter; FY26 full-year revenue hit an all-time high of $479B.

iPhone Revenue: $57.6B

Record September quarter; the undisputed core hardware engine.

Services Revenue: $31.6B

All-time high; high-margin recurring revenue continues to smooth cyclicality.

Gross Margin: 47.9%

Includes a ~1 percentage point favorable boost from tariff refunds.

Diluted EPS: $2.10 (+14% YoY)

Includes a $0.05 favorable impact from tariff refunds.

Greater China Revenue: $17.5B (+21% YoY)

Strong rebound in the most scrutinized geographic segment.

Quarterly Operating Cash Flow: $28B

Massive cash generation; fully funds the $28B returned to shareholders.

FY26 Capex: $9.0B

Capital-light model; massive free cash flow remains intact relative to AI-heavy hyperscalers.