Apple 4Q FY26 Earnings Update: Demand Holds Up, Margins Feel the Memory Squeeze; Maintain HOLD

Apple’s share price has risen around 8% since our previous update on 31 July, closing at USD338.32 on 2 November. We believe the rally reflects investors increasingly treating Apple as a defensive holding within large-cap technology, given its net cash position and low capital intensity relative to peers that continue to ramp up AI-related spending, while the launch of the iPhone 18 Pro and the foldable iPhone Duo drew a strong early response.

In John Ternus’s first earnings call as CEO, Apple delivered a record September quarter, with revenue growing 11.7% y/y to USD114.5 billion, ahead of consensus of USD113.5 billion and above the top end of its 9%–11% growth guidance. EPS rose 13.5% y/y to USD2.10, beating consensus of USD2.00. That said, we note that around half of the beat came from a lower tax rate of 15.0% (vs. guidance of around 16.5%) and higher other income, while the USD0.05 contribution from tariff refunds had already been embedded in guidance.

Nevertheless, the shares fell around -2.8% in after-hours trading, as December quarter gross margin guidance of 45%–46% came in below consensus of 46.7%, overshadowing a stronger-than-expected revenue outlook of 7%–10% y/y growth. As such, while demand remains healthy, we believe the focus has shifted to how much of Apple’s top-line growth can be converted into earnings as memory costs continue to rise.

Figure 1: Apple’s share price.

iPhone and Mac carried the quarter, but pricing power is yet to be fully tested

iPhone revenue grew 17.5% y/y to a September-quarter record of USD57.6 billion, ahead of consensus of USD56.5 billion. With only nine days of iPhone 18 Pro sales in the quarter, growth was largely driven by the iPhone 17 family. While management cited a September-quarter record for upgraders both worldwide and in the US, we believe a large part of the growth came from a higher average selling price (the iPhone 17 family carries an average starting price around 5% higher than the iPhone 16 family), along with a continued shift towards Pro models and higher storage configurations.

Mac revenue rose 23.7% y/y to USD10.8 billion, around 11% above consensus despite supply constraints, supported by the late-June price increases (as we highlighted in our previous write-ups) and the more affordable MacBook Neo, which drove a September-quarter record for customers new to the Mac. Meanwhile, iPad and Wearables, Home and Accessories revenue declined -10.4% and -7.9% y/y respectively, missing consensus amid supply constraints and demanding comparisons against last year’s product launches.

Moving forward, while management did not provide product level guidance, we estimate its December quarter guidance implies around 10% y/y growth for iPhone and Mac combined. On top of that, with every iPhone model now priced USD100 higher than a year ago, following the iPhone 18 Pro launch and the price increase on the remaining lineup on 9 September, we believe this largely reflects higher pricing on broadly stable volumes. Meanwhile, the iPhone Duo remains supply-constrained, with no clear visibility yet on when supply will meet demand, limiting its contribution in 1Q FY27 despite its mix upside.

That said, management noted that “it’s early to really read price elasticity at this point in time”, as Mac and iPad have remained supply-constrained since their June price increases, while the iPhone increase only took effect in September. Notably, Japan, where local prices were raised more sharply, was the only region to decline, with revenue falling 1.4% y/y in 4Q FY26. Hence, we expect the coming quarters to provide a clearer read on whether Apple can continue to grow through pricing and premium mix without a sharper decline in volumes, as supply constraints ease and the base iPhone 18 launches.

Table 1: 4Q FY26 earnings summary.

USD million	4Q FY26	4Q FY25	y/y growth	Consensus	vs. consensus
Revenue	114,477	102,466	+11.7%	113,463	+0.9%
iPhone	57,583	49,025	+17.5%	56,480	+2.0%
Mac	10,792	8,726	+23.7%	9,696	+11.3%
iPad	6,229	6,952	-10.4%	6,892	-9.6%
Wearables, Home & Acc.	8,300	9,013	-7.9%	8,996	-7.7%
Services	31,573	28,750	+9.8%	31,584	0.0%
Greater China revenue	17,539	14,493	+21.0%	18,749	-6.5%
Gross margin (%)	47.9	47.2	+71bp	47.6	+31bp
Operating income	35,631	32,427	+9.9%	–	–
EPS (USD)	2.10	1.85	+13.5%	2.00	+5.0%
Source: Bloomberg Finance L.P., iFAST compilations. Data as of 2 November 2026.

Memory costs are set to weigh on margins beyond December

Gross margin came in at 47.9% in 4Q FY26, at the top end of the 47%–48% guidance range, which included an approximately 1-point benefit from tariff refunds. Excluding the refunds, gross margin was around 46.9%, slightly ahead of the roughly 46.5% implied by guidance, but down about 1 point from around 48.1% in 3Q FY26 on the same basis. Management attributed the sequential decline primarily to higher memory costs, partly offset by carry-in inventory, lower costs on certain non-memory components and the price increases implemented in June and September.

However, 1Q FY27 guidance points to further pressure. Gross margin is guided at 45%–46%, below consensus of 46.7% and around 140bp below the 4Q FY26 underlying level at the midpoint, in a quarter that typically benefits from seasonal volume leverage. Management described the current memory pricing environment as “unprecedented” and expects memory purchase prices to keep rising beyond 1Q FY27, while the benefit from lower-cost carry-in inventory diminishes over time. On top of that, we believe the ramp of Siri AI could add incremental costs as usage grows.

Moving forward, we believe margin pressure is likely to persist over the next few quarters, as Apple’s memory exposure is rising on two fronts: higher memory prices and higher memory content per device, as on-device AI features require more mobile DRAM (Apple is now competing for memory supply with hyperscalers signing long-term agreements, weakening its historical purchasing leverage as memory makers prioritise high-bandwidth and server memory). Notably, manufacturing purchase obligations rose by USD33 billion q/q in 4Q FY26, which we believe suggests Apple has secured supply at elevated prices, locking higher costs into the coming quarters. That said, the full-quarter effect of the iPhone price increases, the launch of the base iPhone 18 in 2Q FY27 and easing advanced-node constraints should partly cushion the decline.

Figure 2: Apple’s COGS.

Figure 3: Memory contract prices.

Figure 4: Apple’s Gross Margin

Services continues to set records, but its cushion against product margin pressure is narrowing

Services revenue grew 9.8% y/y to an all-time record of USD31.6 billion in 4Q FY26, in line with consensus, with records in video, cloud services, payment services and advertising, while Services gross margin improved 40bp q/q to 76.0%. That said, growth has slowed from 16.3% in 2Q FY26 and 12.1% in 3Q FY26, largely due to foreign exchange, which weighed on growth by about 4 percentage points between 2Q FY26 and 4Q FY26.

Excluding foreign exchange, Services growth was broadly stable q/q, although App Store performance was broadly unchanged y/y, weighed down by weaker mobile gaming activity, changes to the App Store business model in the US and other markets, and the court ruling on link-out transactions. However, the slowdown is set to extend into 1Q FY27, with Services growth guided at 8%–9% y/y, below consensus of around 12%, as third-party licensing comes under pressure alongside a further 0.5-point FX headwind.

Moving forward, we expect Services’ ability to offset product margin pressure to narrow. Licensing revenue, largely tied to search, is increasingly exposed to search activity shifting towards AI assistants, on top of pending regulatory remedies, while the App Store continues to face regulatory and legal changes. On top of that, the ramp of Siri AI adds server-side inference costs to Services cost of sales, while its monetisation remains at an early stage. Although Apple plans to introduce usage limits on server-side AI features, with users able to purchase expanded access through iCloud+, we expect any meaningful revenue contribution to take time, leaving Siri AI as a net cost to Services margins in the near term. Meanwhile, with Siri AI only recently rolled out, it remains too early to assess its role as an upgrade driver, and as Apple’s AI strategy is still at an early stage, we see limited near-term support from AI to either hardware demand or Services growth.

Figure 5: Services revenue growth y/y.

Greater China grew strongly, but fell short of elevated expectations

In 4Q FY26, Greater China revenue rose 21.0% y/y to a September-quarter record of USD17.5 billion. Growth was supported by stronger iPhone demand and better supply availability relative to competitors, which allowed Apple to gain share in the region. Nevertheless, while the region remained resilient, growth has moderated for a third consecutive quarter from 37.9% in 1Q FY26, and revenue came in below expectations of USD18.7 billion.

Despite Greater China has proven more resilient than we previously expected, with growth broadly sustained at above 20% in 2HFY26, we believe our concerns have eased only partly. On the positive side, domestic competition has been less of a drag than we anticipated, as rising memory costs weigh more heavily on domestic peers concentrated in the lower-priced segments, while Counterpoint Research data show iPhone 18 Pro series sales in China rose 29% y/y in their first three weeks, despite a RMB1,000 increase in its local starting price. As such, higher pricing and robust premium demand could likely keep growth in the region healthy in 1Q FY27, albeit slower than in 4Q FY26, as Apple laps a high base of USD25.5 billion a year ago, when revenue grew 37.9% y/y on the back of the iPhone 17 launch and China’s national subsidy programme. On top of that, the more price sensitive segment has yet to be tested, with the base iPhone 18 widely expected to launch only in early 2027. Hence, we see the pricing of the base iPhone 18 as the key swing factor for the region, as a launch price below the RMB6,000 subsidy cap would keep Apple’s volume model within China’s subsidy programme..

Figure 6: Greater China revenue growth y/y.

Earnings conversion and cash returns are tighter than the headline suggests

While revenue grew 11.7% y/y, operating income rose only 9.9% y/y, as operating expenses continued to increase on the back of R&D investment in AI. On top of that, we estimate free cash flow declined around -2% y/y to approximately USD25.9 billion, despite net income growing 11.8% y/y, as inventory rose to USD14.5 billion from USD5.7 billion a year ago amid higher memory purchases. As such, the USD28 billion returned to shareholders during the quarter, including USD24 billion in share buybacks, exceeded the quarter’s free cash flow.

Meanwhile, Apple’s capital discipline, which we previously highlighted as a key support for its premium valuation, has become less clear-cut. Low capital expenditure remains a distinct advantage relative to hyperscalers, but as Apple relies on device-level processing and external cloud partners, a growing share of its AI costs will appear in cost of sales and operating expenses. Moreover, management has yet to set out a new capital structure framework after removing its net cash neutral target, while net cash declined to around USD57 billion from around USD62 billion at the end of the June quarter. That said, 1Q FY27 guidance points to operating expense growth slowing to 11%–13% y/y, which, together with continued buybacks, should support earnings growth as gross profit growth slows.

Figure 7: Apple’s R&D expenses.

Maintaining HOLD as the earnings upside has largely priced in

Overall, the quarter strengthens our confidence in Apple’s premium hardware positioning, with demand remaining healthy across iPhone and Mac, supported by higher pricing and a richer product mix. Nevertheless, Services growth is slowing as licensing and App Store headwinds build, while Apple’s AI strategy remains at an early stage, particularly in agentic capabilities, and the recent price increases have yet to be fully tested against consumer demand.

Moving forward, as FY26 is now complete, we roll our valuation forward to FY29E, which we believe better reflects Apple’s earnings power as the iPhone 18 cycle, including the base iPhone 18 and the Duo, is fully reflected.

We also raise our fair P/E to 30x from 29x. First, 30x sits between Apple’s 3-year and 1-year average forward P/Es of approximately 28x and 32x, respectively. Second, we believe Apple has emerged as the safe haven within big tech. As the only megacap technology company not committing heavily to AI infrastructure spending, with capex at around 2% of revenue and a sizeable net cash position, Apple has become the stock investors turn to whenever concerns over AI capex and its financing resurface, and we expect it to continue commanding a safe-haven premium in the near term. Lastly, we stop short of a higher multiple, as slowing Services growth, which has been a key driver of Apple’s multiple expansion in recent years, together with modest earnings growth, keeps our fair P/E below the current market multiple of around 36x. Moreover, should investors rotate back into AI beneficiaries, or should Siri AI fail to translate into stronger upgrades and Services monetisation across its 2.5 billion-device installed base, Apple’s safe-haven premium could narrow.

As such, while we believe Apple remains a high-quality consumer technology company, the current valuation of around 36x FY27E P/E (as of 2 November) already reflects much of its near-term growth prospects. Hence, we reiterate our HOLD call on Apple, with a target price of USD346 in FY29E, implying an upside of 2.3%.

Table 1: Apple valuation summary.

In Millions of USD	FY 2026	FY 2027 E	FY 2028 E	FY 2029 E
Revenue	478,834.00	523,890.20	564,766.80	602,588.70
Growth %, YoY	15.10%	9.4%	7.8%	6.7%
EPS	8.98	9.50	10.32	11.54
Growth %, YoY	20.4%	5.8%	8.6%	11.8%
P/E	37.67	35.61	32.78	29.32
Fair P/E				30
Upside Potential				2.3%
Target Price (USD)				346.2
Source: Bloomberg Finance L.P., iFAST compilations. Data as of 2 November 2026.

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report — including all investment theses, ratings, price targets and conclusions — has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.