Apple shares fell Monday evening after the iPhone maker delivered a better-than-expected quarter but offered mixed guidance due to a slowdown in services revenue growth and high memory costs eating into margins.

Revenue in Apple's fiscal 2026 fourth quarter ended Sept. 26 increased 12% to $114.48 billion, ahead of the $113.39 billion expected, according to LSEG. Earnings per share (EPS) grew 14% to $2.10, ahead of estimates of $1.99, according to LSEG.

Bottom line We remain "own it, don't trade it" on Apple stock. Shares entered the print on a tear year to date. During an October in which tech stocks were hammered by concerns over AI funding, Apple stood out, hitting a new all-time high late in the month. Apple has emerged as a relative winner in the market as the data center trade has come under pressure.

AAPL YTD mountain Apple YTD Shares entered Monday evening up 25% year to date, outperforming Amazon , Alphabet , Meta Platforms , and Microsoft (all fellow Club holdings). While hyperscalers are burning through much of their free cash flow to fund AI investments, with Microsoft a notable exception, Apple continues to generate substantial positive FCF. That allowed Apple to repurchase $24 billion worth of stock in the quarter and $86 billion over the past 12 months.

The rally pushed the stock's valuation to over 35 times next 12 months' EPS estimates, its highest level in recent memory. That meant the company needed to report a picture-perfect quarter with a strong outlook to avoid profit-taking. Unfortunately, that did not happen.

However, Apple's quarterly results were strong, with revenue, gross margin upside, and Services about in line. The figures were enough to keep the stock unchanged for most of the evening. However, when management provided guidance for the current quarter, the stock fell about 3% in after-hours trading due to downside in gross margins and Services revenue growth relative to Street expectations.

The company's overall revenue guide was better than expected. Apple has managed through rising memory costs for several quarters now, and prices aren't easing anytime soon. December's memory costs are expected to be higher than September's, which was up from the June quarter. Memory costs are outside management's control and won't remain this high forever, so our focus is on how Apple is navigating the issue. One way they can offset these higher costs is by raising prices, as it did with Macs and iPads in June and iPhones in September.

Apple is also pursuing lower costs on non-memory components. What is in the company's control is the products and services it introduces, and it appears they have a hit with the launch of the foldable iPhone Duo. The new form factor sold out immediately on its launch date, a sign that there isn't enough supply to meet the demand. "iPhone Duo is constrained as of today," Apple COO Sabih Khan confirmed on the earnings call. "The ramp is going well, and we're working hard to get this revolutionary new product into the hands of our customers as quickly as possible.

But at this time, it's really hard to predict when supply and demand will be in balance." The Duo was available for preorder Oct. 16 and hit stores on Oct. 23. So, none of the revenue from the new device was included in the September quarter numbers. There was no mention of the reports of cracks in Duo screens on the earnings call, which Apple previously acknowledged. The company has said the issue impacted a "small number" of devices and that affected users "should contact AppleCare for a replacement."

From an AI perspective, CEO John Ternus, on his first earnings call since succeeding Tim Cook on Sept. 1, emphasized the iPhone's role as "the intelligent personal hub" and Siri AI's ability to tap into the wealth of personal information stored on the device. "If you think about it, so much of your personal data is on your iPhone, whether it's your contacts, your communications, health data, financial data, all of that," he explained. "Siri can tap into that and help you access it in a way that's very secure and private and that nobody else has access to." We come away balanced from the quarter, understanding that Apple continues to gain share over its competitors in the smartphone and PC markets while memory costs remain a temporary challenge.

We're raising our price target slightly to $360 from $340 per share but keeping our hold-equivalent 2 rating due to the run it has had and lofty valuation. Quarterly commentary Products revenue increased 12.5 year over year to $82.9 billion, outpacing the $82.26 billion estimate. The better-than-expected result was driven by the 17.5% growth in iPhone and 24% growth in Mac sales. The Mac outperformance is notable given the personal computer market warning Intel gave last week. Wearables, Home & Accessories sales fell 8% year over year, but that was better than feared. iPad sales declined 10.4% year over year, worse than analyst expectations.

Services revenue growth decelerated sequentially, just below 10% year over year. Sales of $31.57 billion were just shy of estimate of $31.59 billion. But the company remains upbeat about the future growth of its services business, thanks to the large install base of over 2.5 billion active devices it can monetize. Company-wide gross margin came in at the high end of management's outlook, improving 70 basis points year over year to 47.9%. That beat the consensus forecast of 47.5%.

The result included a favorable impact of 1 percentage point from tariff refunds. Excluding the tariff refund, gross margins would have been down one percentage point sequentially, primary due to higher memory costs.

By unit , Products gross margin improved 100 basis points year over year to 37.2%, beating the analyst forecast of 36.8%. Services profitability made up for the slight revenue shortfall, with gross margin expanding 70 basis points year over year to 76%, beating analyst forecasts of 75.1%. By region , Apple had double-digit growth in every region except Japan, where sales slipped by about 1%. Despite longstanding concerns about competition, the Greater China region delivered the strong year on year growth at 21%. Apple topped the consensus forecast in Greater China as well as Europe and the Rest of Asia Pacific.

The Americas and Japan were small misses. Guidance Taking a closer look at Apple's current quarter guidance, the holiday quarter that is the company's fiscal 2027 first quarter. December quarter revenue is expected to increase by 7% to 10% versus the year-ago period, above the 5.8% growth the Street was looking for, according to FactSet. This works out to a revenue guide of $155.98 billion versus the consensus of $152.12 billion. That was the good news.

The bad news was that the high-margin Services revenue growth is expected to slow down again. The company guided Services revenue growth to 8% to 9%, below the Street estimate of 10%. This works out to a guide of $32.56 billion versus the consensus estimate of $33 billion. The combination of a higher mix of hardware sales (lower margin) with the ongoing memory price increase are probably the reasons why the gross margin guide was light. The company guided gross margin between 45% to 46% which is below is below the consensus estimate of 46.9%, Apple also called out a step up in inference costs in connection to Siri AI. (Jim Cramer's Charitable Trust is long AAPL, AMZN, GOOGL, META, MSFT. )