Apple beats forecasts but warns AI costs will trim holiday margins to 45-46%
Apple beat analysts' expectations for the July-September quarter, posting what chief executive John Ternus called a "revenue record" on the back of iPhone sales and services revenue, but the company warned that rising AI costs will eat into margins over the holiday period.
Speaking on a call with analysts, chief financial officer Kevan Parekh said gross margin would slip to between 45 percent and 46 percent in the final stretch of the year, down from 47.9 percent in the September quarter. He attributed the decline primarily to higher memory costs and "some costs related to the ramp of Siri AI", the digital assistant Apple rebuilt this year using Google's Gemini model.
Parekh argued the spending is a route to upgrades rather than a drag. "We feel AI offers a compelling reason for customers to upgrade and switch in order to get the latest capabilities," he said, pointing to opportunities in third-party apps, partnerships and Apple's own products. Ternus, who took over from Tim Cook in September, said the company was "closing the year with our most ambitious lineup yet" and struck an optimistic note on holiday demand for new products including the foldable Duo.
Apple's AI bill remains small next to its peers. Analysts expected the Cupertino company to spend $11 billion in the 12 months to September, a fraction of the capital expenditure planned by Microsoft, Alphabet, Amazon and Meta, which are on track to spend more than $700 billion this year, much of it on AI infrastructure, according to analyst estimates. Meta has guided to $145 billion, Amazon to $220 billion, Microsoft to $170 billion and Alphabet to between $195 billion and $205 billion.
The company launched three phones in September - the 18 Pro, 18 Pro Max and its first folding handset, the Duo - alongside two desktops, and in October unveiled a Siri AI-powered smart display called HomeView and its first touchscreen MacBook Pro. It is also in a legal fight with a close AI partner: in July it sued OpenAI, alleging the lab orchestrated a campaign to steal trade secrets as it develops its own consumer hardware. ChatGPT has been integrated into Apple products since 2024.
