Apple Gets Kicked Out of the $5 Trillion Club After Reporting Earnings. Are Fears Over Surging Memory Costs Overblown?

On the surface, Apple (NASDAQ: AAPL) delivered a strong third-quarter earnings report with revenue jumping 16% to $109.4 billion, edging out the consensus at $109 billion.

IPhone sales jumped 22% to $54.3 billion, and Mac was a bright spot as well, up 29%, and Apple reported double-digit revenue growth in all five of its regions.

Gross margin reached 50.1%, which included a benefit of two percentage points from tariff refunds. On the bottom line, the company reported earnings per share of $2.02, which included an $0.11 benefit from tariff refunds, compared to analyst estimates of $1.89.

However, the stock still finished down 7.4%, cooling off what had been a breakout run in recent weeks, as the company issued disappointing guidance. Apple stock had soared as it got credit for avoiding spending hundreds of billions on AI infrastructure, unlike its big tech peers.

Apple called for overall revenue growth of 9%-11% to $111.7 billion-$113.7 billion, which was below the consensus at $115 billion. The company cited two major headwinds for that guidance: foreign-exchange headwinds and supply constraints, primarily related to memory.

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The memory shortage bites again

Apple made headlines a few weeks ago when it said it would raise iPhone prices due to higher memory chip costs, and now the ongoing rise in memory prices is biting into the company's margins.

CEO Tim Cook said that memory prices were expected to rise in the September quarter, though there are some ways to offset those costs. However, the company expects memory prices to continue to increase beyond September, and Cook said it "could drive an increasing impact on our business."

For the September quarter, Apple expects gross margin of 47%-48%, which is even with the 47.2% it reported a year ago.

What it means for investors

Based on forecasts for memory chip companies like Micron, prices are expected to continue rising at least through next year, and that could put the brakes on Apple's profit growth.

The company's return to double-digit revenue growth has been impressive, but without further price increases, Apple will likely have to absorb some of those costs. The memory pricing surge won't last forever, but the sell-off in the stock, especially after Apple had surged past a $5 trillion market cap, makes sense.

At a price-to-earnings ratio of 37, Apple isn't cheap. The memory shortage isn't a reason to sell the stock, but it's likely to restrain any gains over the next year or two. Keep your eye on the memory market as further tightening is likely to impact Apple.

Jeremy Bowman has positions in Micron Technology. The Motley Fool has positions in and recommends Apple and Micron Technology. The Motley Fool has a disclosure policy.