Earnings guidance is impressive across the board, so why didn't Apple surge? It's all because of storage.

Apple reported record quarterly sales on Thursday and gave performance guidance that exceeded Wall Street expectations, but its warning about rising memory costs raised concerns among investors about margin pressure, limiting gains in its stock price. Apple expects second-quarter revenue to grow by 13% to 16%, surpassing Wall Street's expected growth of 10%. This shows the company can sustain its growth momentum even after a holiday sales surge. However, CEO Tim Cook warned during Thursday's analyst call that rising memory prices would have "greater impact" on the current quarter's gross margin. Cook said, "We do continue to see market prices for memory rise sharply." In addition to memory costs, Apple also faces supply constraints related to the iPhone's 3nm processor and AirPods Pro 3. These remarks unnerved investors. After the earnings report, Apple's stock fluctuated in after-hours trading, rising by less than 1% so far. The stock has fallen 5% this year, while the S&P 500 Index has risen 1.8% over the same period. iPhone's Record Performance Drives Revenue Far Above Expectations Apple posted $143.8 billion in revenue for the holiday quarter ending December 27, up 16% year-over-year and far above analysts’ average forecast of $138.4 billion. The company had previously predicted a 10% to 12% increase. Cook stated in the earnings release: "The iPhone achieved its best quarterly results ever, demand was unprecedented, and every region set all-time records." iPhone revenue reached $85.3 billion, surpassing the expected $78.3 billion and representing 23% year-on-year growth. This product line accounts for about half of Apple’s total revenue, with high-end models being especially popular and further driving sales and profit growth. Earnings per share reached $2.84, exceeding the average forecast of $2.68. Performance in the China market was particularly strong, with revenue of $25.5 billion, up 38% year-on-year and far exceeding Wall Street’s estimate of $21.8 billion. This marks a strong rebound for Apple in this key market. Apple recently regained its position as the world’s top smartphone seller, overtaking Samsung Electronics. Services Business Shows Steady Growth; Mixed Performance in Other Product Lines The services business became another growth engine, with quarterly revenue of $30 billion, up 14% year-over-year, meeting market expectations. This segment continues to provide Apple with a stable, high-margin revenue stream. iPad sales reached $8.6 billion, up 6.3% year-on-year, exceeding Wall Street's forecast of $8.18 billion. However, the Mac business was weak, with revenue dropping 6.7% to $8.39 billion, below the expected $9.13 billion. The wearables, home, and accessories division continued its slump, with sales falling 2.2% to $11.5 billion, missing analysts’ forecast of $12.1 billion. The continued weakness in this segment highlights Apple’s challenge in finding new growth drivers beyond the iPhone. Cost Pressure and Supply Chain Challenges Persist Although memory cost impacts were limited last quarter, Cook made it clear that current quarter pressure will be greater. The sharp rise in memory market prices is threatening the company's margin levels. On the supply chain side, Apple also faces supply constraints for the iPhone’s 3nm processor and for AirPods Pro 3. In addition, tariff issues negatively impacted the company by $1.4 billion in the holiday quarter. Emarketer analyst Jacob Bourne noted in a research report: Uncertainty about maintaining market dominance may be greater than ever, depending on pricing strategies and correct decisions regarding next-generation devices, especially wearables and the anticipated foldable iPhone. Apple also faces concerns about its artificial intelligence strategy, and the company is making adjustments to this business this year. Risk Disclosure and Disclaimer The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the unique investment objectives, financial situation, or needs of any individual user. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular circumstances. Investing based on this information is at your own risk.