3 Reasons Why Apple Shares Are Falling

We are seeing shares of Apple (AAPL) move lower on Friday, not in response to the company’s besting June quarter expectations, but because of three other factors.

The first is Apple’s guidance for the current quarter that came up short relative to what the market anticipating both on the topline and margins due to supply chain pressures are expected to intensify in the current quarter. Tying to that supply chain pressure is the second factor: Excluding the impact of tariff refunds on Apple’s June quarter results, we find its gross margin contracted quarter over quarter. Third, Service revenue, which came in at a $30.74 billion record, was shy of the $31.36 billion market forecast.

We’d also add that the run-up in AAPL shares ahead of the earnings report left little room for disappointment, despite potential for supply chain concerns to weigh on the company’s outlook. With the benefit of hindsight, our decision to trim back the Portfolio’s AAPL position in mid-July at $331.26 was a prudent one.

Before we get to the nuts and bolts of Apple’s June quarter, because the pressure on the shares is stemming from the company’s guidance for the current one, let’s tackle that.

Apple guided total revenue growth of 9% to 11% year over year, a step down from June’s pace, driven by an expected 2.5-point sequential FX headwind and the supply constraints. We’ve talked about supply chain concerns with you before as chip capacity has shifted to address AI and data center demand at the expense of other end markets. Those constraints are expected to intensify in the September quarter across iPhone, Mac and iPad. In our view that pressure explains the announcement from Apple several weeks back for a new multi-year custom-silicon and wireless-connectivity agreement with Broadcom (AVGO) exceeding $30 billion.

Several months ago we shared our concerns over memory and other component constraints as companies like Micron (MU) shifted capacity to meet AI and data center demand at the expense of PCs and other end markets. We also suspected there would be a pull forward in demand by consumers and businesses ahead of potential shortages but also higher prices as OEMs looked to protect margins and pass through those higher component costs. We are seeing that flow through the system as showcased by Microsoft’s current quarter guidance for its More Personal Products segment.

What’s different with Apple (AAPL) is the pending launch of new iPhone models alongside the overhauled Apple Intelligence and Siri AI. Morgan Stanley estimates that more than 850 million active iPhones are incapable of running basic Apple Intelligence queries, while over 1.3 billion devices cannot use the most advanced AI-powered Siri features. That suggests the potential for a massive upgrade cycle, provided the upcoming iOS 27 software release delights exiting iPhone users and wins over current Android ones.

And yes, they will likely carry higher price tags, but taking this into account, Apple recently a launched its Apple Upgrade program, which is a new leading program provided by Klarna (KLAR) that spreads payments for Apple products between 12 to 36 months depending on the product. And those higher price tags, along with the phase in of ones for other Apple products in June, give us reason to think the market could be underestimating Apple’s revenue in the December quarter and for 2027. What we see in upcoming quarterly shipment data matched against Apple’s product prices will tell us if our thinking is correct.

Recognizing that potential, we will remain AAPL shareholders despite the setback we’re likely to see in the shares on Friday. Based on that shipment data as well as consumer reception to iOS 27, Apple Intelligence and Siri AI as well as the upcoming new iPhone models, we’ll revisit our AAPL price target as needed. Ahead of those learnings, if we see AAPL shares fall near the 100-day moving average, based on what we know as of today, that would be a nice spot to pick up some additional AAPL shares.

Apple’s June Quarter

Apple’s June quarter revenue rose 16.4% to $109.42 billion, compared with analyst estimates of a 15.5% rise, and delivered EPS of $2.02, with 11 cents attributable to tariff refunds from the U.S. government. Excluding the refunds, the company’s bottom line still bested the Wall Street consensus of $1.89 per share.

iPhone was the standout performer with revenue of $54.3 billion, up 22% year-over-year, a June-quarter record driven by the iPhone 17 family. As we mentioned above, the Services business also set a record with every category hitting record revenue as Apple surpassed 1.5 billion paid subscriptions for the first time. While some will point out Service revenue of $30.74 billion missed the Wall Street forecast of $31.36 billion, what isn’t being called out is the double-digit growth the Service business posted in the quarter or the double-digit jump in gross dollar profits contributed by this higher margin business.

We’ve talked many times about the benefit that higher margin business brings to Apple, and it is one that should help minimize product supply chain issues on the company’s overall performance. That’s probably why we’ve seen some recent price increases for various offerings under that umbrella. Exiting the quarter, Apple’s active user install base topped 2.5 billion devices, which in our view bodes well for further Service revenue growth in the coming quarters.

Mac had its best June quarter ever at $10.4 billion, up 29%, powered by MacBook Neo and MacBook Pro, with an all-time revenue record in emerging markets and particular strength in Greater China. iPad revenue fell 6% to $6.2 billion against a difficult year-ago comparisons, though the installed base hit an all-time high and over half of buyers were reportedly new to the product. Wearables, home and accessories revenue grew 6% to $7.9 billion.

On the margin front, Apple’s operating profit margin rose to 32.8% up nicely sequentially but a more dramatic gain compared to 30.0% in the year-ago quarter. But that comparison also reflects a two-point benefit from tariff refunds. Excluding that impact, margins landed at the midpoint of prior guidance, and it also reveals that Apple’s gross margin fell quarter over quarter.

Here’s the thing: Apple’s gross margin guidance for the current quarter is 47% to 48% (including about one point of tariff-refund benefit), down from the reported 50.1% for the June quarter, but not as much from the adjusted 48.1% figure. Per management, the overwhelming culprit is memory costs, which is a positive for the Micron (MU) shares we hold in the EPS All-Stars basket. Apple is evaluating broadening its DRAM supplier base beyond its three current suppliers for supply and possible pricing relief.

Apple ended the quarter with $147 billion in cash and marketable securities against $84 billion in total debt and returned $33 billion to shareholders during the quarter — $4 billion in dividends and $25.8 billion in share repurchases. Per its 10Q filing for the June quarter, Apple has roughly $138 billion remaining under its current share repurchase authorization.

On the dividend front, Apple’s board declared a $0.27-per-share dividend payable August 13 to shareholders of record as of August 10.

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At the time of publication, TheStreet. Pro Portfolio was long AAPL, AVGO and MU.