We’re Trimming Our Apple Price Target After Earnings

We are modestly reducing our price target on Two-rated Apple (AAPL) to $360 from $375, reflecting incrementally softer gross margins for the current quarter. In the October Monthly Roundup, we noted that a pullback in AAPL near $331 would be a place to consider picking up some shares, but a more pronounced move near $320 offers a more compelling spot to add. Following last night’s earnings, premarket trading has AAPL near its 100-day moving average at $321.81.

We’ll want to see if that level holds alongside the ones for the S&P 500 and Nasdaq Composite that we laid out in our opening comments this morning. With the market mood in “Extreme Fear,” we are inclined to let the post-earnings reaction filter through Apple shares and wait for them to settle out before making a move. In the past, extreme share-price moves, like the one we are likely to see today, have been favorable times to add. And Apple has none of the free cash flow concerns that are weighing on other Tech names; in fact, Apple’s free cash flow, as we discuss below, remains robust.

All in all, Apple beat on the September quarter, and demand for the new lineup is strong. The limiter right now is supply, not interest, and the revenue guide points to a record quarter. That said, the margin guide and the Services outlook will weigh on sentiment, with memory costs still climbing.

Odds are the focus in the coming months will be how well price increases, carry-in inventory, the Duo ramp and Siri AI-driven upgrades offset those pressures. Those are the levers, along with supplier comments and insights from Skyworks (SWKS), Taiwan Semiconductor (TSM), and Foxconn (FXCOF), we’ll be monitoring.

Apple’s September 2026 Quarter

Apple capped off its best fiscal year ever with September-quarter EPS of $2.10, $0.11 better than the consensus of $1.99, on revenue that rose 11.7%, year over year, to $114.48 billion versus the $113.4 billion consensus. Those beats came despite supply constraints on iPhone, Mac and iPad and nearly two points of sequential FX headwinds.

Tariff refunds did add roughly one point to gross margin and $0.05 to EPS. Stripping that out, EPS was $2.05, still ahead of consensus and up nearly 11% year over year. On tariffs, Apple has now received the vast majority of its refunds, and guidance assumes current tariff rates and policies hold.

Exiting the quarter, Apple’s install remained above 2.5 billion with management citing an all-time high in every product category and geographic region. The number of paid subscriptions rose double-digits during the quarter to more than 1.5 billion.

Excluding tariff refunds in both the June and September quarters, gross margin fell about one point sequentially but came in better than Wall Street forecasts. Management attributed that entirely to higher memory costs. As we discussed in today’s opening comments, that was hardly a surprise, and Wall Street forecasts already modeled a step down compared to the September quarter that were largely in line with the company’s guidance of 45% to 46%. That explains the muted reaction in terms of modest price cuts as well as our own adjustment.

Management expects memory costs to keep rising beyond December, with a shrinking benefit from carry-in inventory. To secure supply, manufacturing purchase obligations jumped $33 billion from June to September, and inventory ended the year at $14.5 billion versus $5.7 billion a year earlier.

Product gross margin degradation will remain a key focus, but we suspect Apple will continue to flex its supply chain prowess and benefit from favorable product mix with higher average selling prices. But we will want to pay close attention to comments from key suppliers, as they report, and gauge demand for iPhones and the larger smartphone market.

Dividends and Buybacks

Apple returned $28 billion in the quarter, including $24 billion through buybacks and $3.9 billion in dividends. Apple’s board declared a $0.27 quarterly dividend, payable Nov. 16 to shareholders of record Nov. 12.

While Apple ended the quarter with $137 billion in cash and marketable securities against $80 billion in debt, the $145 billion in operating cash flow and significant levels of free cash flow make its business a standout among other Tech companies in today’s market environment.

Even after adjusting gross margin expectations, Apple is still expected to deliver free cash flow between $30 billion-$50 billion per quarter in the coming year. That leaves little question for its existing dividend and suggests either a dividend increase or another boost to its buyback program is likely.

December Quarter Guidance

Apple management guided overall revenue to be up 7% to 10%, to roughly $153.9 billion to $158.2 billion based on last year’s $143.8 billion, which would be Apple’s best quarter ever. That’s on top of 16% growth a year ago and comes in the face of supply constraints. The Services business is expected to be up 8% to 9%, a bit softer than expected, but that also implies even stronger product sales growth.

The color from management is that iPhone constraints should ease as more chips shift to 2-nanometer nodes, but Mac and iPad will stay constrained by memory as demand runs ahead of expectations.

We are not surprised by Apple’s move to address iPhone constraints over other products given the size and influence iPhone has on Apple’s overall revenue and profits, especially on the heels of introducing its new flagship products. So far demand for the higher ASP Duo has been robust, with lead times stretching into late January to early February depending on the source. Let’s also consider the timing of Apple’s new iPhone 18 Pro and Pro Max models and higher ASPs only being available for a few weeks in the September quarter.

iPhones

iPhone revenue rose 17% to a September-quarter record $57.6 billion, with strong double-digit growth in the U.S. and Greater China and record upgraders worldwide. That was with only a few weeks of the iPhone 18 Pro and Pro Max and none of the iPhone Duo, which, per Reuters, wasn’t included in September-quarter iPhone revenue. The Duo sold out within hours online and remains supply constrained, with no timeline for balance, setting it up as a December-quarter contributor as Apple ramps production volumes.

There was no standard iPhone 18 this fall. Management wouldn’t discuss the roadmap, but expectations are a regular iPhone 18 and new iPhone Air are coming in the first half of 2027. Spacing out launches should help smooth Apple’s historically holiday-heavy revenue cycle.

Mac

Mac revenue jumped 24% to $10.8 billion, led by the MacBook Neo and MacBook Pro. Apple sold more Macs in fiscal 2026 than ever, gained share per IDC, and landed its biggest Mac education deal yet, 170,000 MacBook Neos for the Philippines. The new MacBook Pro brings touch to the Mac for the first time, alongside an M6-powered MacBook Pro and iMac.

iPad and Wearables

iPad revenue fell 10% to $6.2 billion on supply constraints and a tough compare against last year’s A16 iPad, while Wearables, Home and Accessories fell 8% to $8.3 billion against last year’s Watch SE 3 and AirPods Pro 3.

More than half of iPad and Apple Watch buyers were new to the product. A new OLED iPad mini, Apple Watch Series 12 and Ultra 4, AirPods 5, and the new HomeView home hub should help the current quarter.

Services

Services revenue rose 10% to a record $31.6 billion, with all-time highs in video, cloud, payments and advertising and more than 1.5 billion paid subscriptions. Services gross margin improved to 76%. That said, App Store revenue was roughly flat as mobile gaming, App Store changes in certain countries, and the U.S. link-out ruling weighed.

Siri AI, now in six languages, is a new lever, with Apple planning paid expanded access to server-side features down the road. A regional rollout for Apple Intelligence in China begins this month with Siri AI integration to follow.

More Pro Portfolio:

At the time of publication, TheStreet Pro was long AAPL.