Apple gross margin slips 3 points as AI capex squeezes chip supply

AI data center spending is now squeezing Apple's hardware margins: the company guided gross margin down to 47 to 48 percent next quarter from a record 50.1 percent, and shares fell 6 percent after hours.

"Apple overall is investing more in AI," outgoing Chief Executive Officer Tim Cook said on the call, his last before hardware chief John Ternus takes over Sept. 1. Cook called the storage price surge a "once-in-a-century flood."

The pressure traces to two supply chains. TSMC's N3 advanced process is 100 percent sold out for 2026, with about 60 percent of capacity going to AI chip customers and a projected 86 percent by 2027. DRAM contract prices jumped more than 90 percent in the first quarter, with Goldman Sachs forecasting a 250 to 280 percent rise for the full year, as Samsung, SK Hynix and Micron shift capacity to high-bandwidth memory, where margins run three to five times consumer DRAM.

Apple's nine-month capital spending of under $6.8 billion is a fraction of the $725 billion the four largest cloud vendors plan to spend this year, yet the cost is flowing through to every device. Apple raised prices on several Mac, iPad and home products in June, and inventory climbed 94 percent to $11.1 billion as component costs rose. The question for investors is whether Ternus can protect margins as the AI buildout tightens supply further.

The 50 percent margin has water in it. The record 50.1 percent gross margin included about two points of one-time tariff refunds; stripped of those, adjusted margin was roughly 48.1 percent, still up 1.6 points year over year on a richer iPhone Pro mix and higher services weight. Even on that adjusted basis, the 47.5 percent midpoint of next quarter's guidance implies a 0.6-point decline. EPS of $2.02 included $0.11 from the tariff refund, leaving adjusted earnings of about $1.91, roughly $0.04 above consensus — a beat driven by one-time items, not operations.

R&D spending is compounding the cost pressure. Single-quarter research and development rose 32.3 percent to $11.7 billion, twice the pace of revenue growth, as Apple pours money into its own AI silicon, Siri and software integration. Nine-month R&D reached $34 billion, up $8.3 billion. Cook said the spending is "for AI overall," but AI-related paid services have yet to generate meaningful revenue, so the cost base is rising before the income arrives.

Demand is strong, but supply is the constraint. iPhone revenue of $54.3 billion, up 21.7 percent, set a June-quarter record and contributed nearly half of total sales. Mac revenue rose 28.7 percent to $10.4 billion, beating consensus by about 20 percent, though Cook said June-quarter supply limits hit Mac hardest and September will extend to iPhone and iPad. iPad was the only declining category, down 5.9 percent to $6.19 billion on longer replacement cycles. Services, the high-margin cash engine, slowed: revenue of $30.7 billion grew 12.1 percent, below the prior quarter's $31 billion and about 2 percent under the $31.4 billion consensus. Paid subscriptions passed 1.5 billion, but AI-linked paid add-ons have not yet scaled.

A supply-chain shift is taking shape. Intangible assets jumped 83 percent to $20.3 billion in a single quarter, a $9.3 billion increase the company did not break out — a scale that typically signals an acquisition or major intellectual-property deal, possibly in AI. Cook said Apple is "evaluating all options" to add DRAM supply sources, an indirect nod to China's ChangXin Memory, the only domestic maker with volume DRAM production and about 7.67 percent of global share. Expanding beyond Samsung, SK Hynix and Micron would mark a structural change in Apple's sourcing.

Ternus inherits a supply-constrained roadmap. Apple's September-quarter guidance implies iPhone growth of about 15 percent, below the 17.6 percent consensus, with Mac and iPad hit by "increasingly severe" supply constraints and a roughly 2.5-point currency headwind. Cook's farewell was measured: "The transition has gone very smoothly, and I very much look forward to John Ternus moving into his new role." Ternus's first test is concrete — how many new iPhones he can ship, at what price, and whether wait times for Mac and iPad shrink.

Three variables will shape Apple's cost curve next quarter: DRAM contract prices, the share of TSMC's advanced capacity going to AI versus consumer chips, and whether ChangXin Memory enters Apple's supply chain. Any one of them moving could change the margin trajectory. Apple shares, which topped a $5 trillion valuation on July 28 and trade near 41 times earnings against Nvidia's 30 and Amazon's 28, have priced in a premium that the supply squeeze now threatens.

This article is for informational purposes only and does not constitute investment advice.