Apple Stock Falls as Memory Chip Costs Squeeze Margins

Apple's $4.9 trillion market value took a hit in after-hours trading on Monday after the company guided its December-quarter gross margin down to between 45% and 46%, from 47.9% in the September quarter. The culprit, according to the company itself: an unprecedented surge in memory chip prices plus the cost of ramping up its revamped Siri AI assistant.

The margin warning landed on the first quarterly earnings call for John Ternus, Apple's 51-year-old new CEO, who took the top job roughly two months ago. The numbers themselves were strong — Apple beat September-quarter earnings expectations and set a record for September iPhone sales. But investors sold the stock anyway, and the reasons tell you what matters right now in this story: squeezed margins, a slowdown in Services growth without a clear rebound plan, and an AI story Wall Street doesn't yet believe.

What did Ternus actually say?

On the call, Ternus didn't mince words about the memory problem. "What we're seeing with memory pricing right now is unprecedented," he told analysts. "That has put pressure on our prices." He added that beyond the December quarter, Apple expects memory pricing to keep climbing.

For context, Apple has already offset rising component costs by raising its own prices, leaning on its massive installed base to absorb the hit. The September quarter's 47.9% gross margin also got an artificial lift of roughly one percentage point from tariff refunds — meaning the underlying margin was weaker than the headline suggested even before the guide-down.

Ternus projected confidence but stuck mostly to scripted marketing lines, including "Apple is the greatest company in the world," which subdued the conversation. He delegated several questions to Chief Financial Officer Kevan Parekh and Chief Operating Officer Sabih Khan, who Apple said will now participate in earnings calls going forward — a break from years of practice.

He closed with a flourish: "We have everything we need to be extraordinarily successful. With this team, this vision, this mission, and these values, I have no doubt that we will."

Is Siri AI falling behind?

This is the question hanging over the whole quarter. Ternus and Parekh offered few details on the Siri AI roadmap when analysts pressed them. Asked about the industry shift toward consumer AI agents — such as Meta's Muse assistant — Ternus acknowledged that Siri is "primarily request-based today," while arguing its architecture allows Apple to substantially expand its capabilities over time.

He called agentic capabilities "promising tools for users" but cautioned that users must be fully aware of the access they grant, stressing security and privacy.

The gap is real, though. Siri AI, which Apple has been rolling out in beta and which anchors its new home devices including its first smart home display, is designed to understand what's on a user's screen and act on it, help with writing, and search a device for context. Reviews have been mixed. By most assessments it still lags well behind leading chatbots from OpenAI and Anthropic, and behind a wave of personalized agents from Meta and others that can shop, check bank statements, and complete tasks on their own.

"Siri AI is much more capable and functional today, but how do you take it to the next level?" Wamsi Mohan, an analyst at Bank of America, told Fortune.

Apple investor Gene Munster was blunter. "We're going into this [holiday period] with more downside than upside," he told Fortune before earnings. After the results posted, he wrote on X: "It's clear they don't want to talk about personalized agents. They're the biggest risk to the Apple ecosystem."

How bad is the Services slowdown?

When analysts asked how Apple plans to revive its Services unit — which includes iCloud and the App Store — and find new revenue streams, executives mostly pointed to the installed base, which has now surpassed 2.5 billion active devices. They said that base will drive future monetization possibilities, and hinted at mechanics: usage limits on features that rely on cloud-based (non-local) AI, and iCloud tiers historically focused on storage will evolve.

No timeline. No specifics. That vagueness, layered on top of the margin guide-down, is what moved the stock.

Hardware: strong demand, broken supply

Ternus's early tenure has been defined by a wave of hardware. At his first public event as CEO in early September, he unveiled the foldable iPhone Duo, which has shown strong demand — orders are backed up — though supply constraints make it hard to gauge actual sales scale. Some units shipped with cracked screens, which Apple acknowledged and said it is replacing. New Duo orders won't arrive until the end of January.

When an analyst hinted at "supply chain" issues on the call, Ternus let COO Sabih Khan answer. The ramp is going well, Khan said, but "It's really hard to predict when supply and demand will be in balance." Analysts at Yorkville Ives predict Apple can sell roughly 10 million iPhone Duos over the next few quarters.

Apple has also shifted to a staggered iPhone release: the Pro, Pro Max, and Duo are available now, while the base model and iPhone Air won't arrive until spring. Bank of America's Mohan warns the staggered approach, combined with rising component costs and the Services slowdown, could affect future performance.

What about China?

Greater China sales jumped 21% year-over-year in the September quarter — though the total still came in about $1 billion short of Wall Street targets, per Bloomberg estimates. Apple also struck a deal with Alibaba Group Holding after long negotiations to bring AI features to China-based iPhone customers. Caveat: the launch won't amount to a full Siri AI experience for Chinese users.

What does all this change for practitioners? Watch the December-quarter margin print and memory pricing beyond it — those two numbers will decide whether Ternus's pricing power holds, or whether the 2.5-billion-device install base becomes the only story left to tell.