Should You Be Worried About Apple Stock?
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If you own Apple (AAPL), the worry is simple: with the shares near their richest valuation in ten years, anything that dents profits would hurt. Apple stock returned 35.1% over the past year, compared with 17.1% for the S&P 500. Demand is not the issue. Management said on its fiscal Q3 2026 call that iPhone and Mac sales ran well ahead of plan. The pressure sits on the cost side instead. So what is that cost, and how hard is it squeezing Apple’s margins?
Apple Is Paying Far More For Memory Chips
Memory chips have become sharply more expensive for Apple, and management says so itself. On the July 30, 2026 call, management said the company had reluctantly raised prices because of what it called a 100-year flood in memory pricing, citing exponential increases. Management said it expected to pay even higher memory costs in the September quarter, and it saw market prices for memory still rising after that.
Apple’s own forecast points to a lower margin, even as it expects to pay more for memory. Gross margin reached 50.1% in fiscal Q3 2026, up from 46.5% a year earlier. For the September quarter, management guided to a gross margin of 47% to 48%. That guidance includes a benefit of about one point from tariff refunds. Memory supply is also concentrated, with management noting that the DRAM market has three suppliers.
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How Much Of Apple’s Business Does This Touch?
The higher memory costs touch most of Apple’s business. The products business brought in $78.7 billion of the $109.4 billion in revenue for fiscal Q3 2026. This hardware revenue grew 18% from a year earlier, outpacing the 12% rise in services. The iPhone alone made $210 billion in fiscal 2025, accounting for about half of Apple’s revenue that year.
Apple’s share price leaves little room for a setback. Apple trades at 38.6 times earnings, compared with 23.0 for the S&P 500. Its price-to-sales ratio of 10.5 at the end of September 2026 was the highest in ten years of quarter ends. The stock closed on October 20, 2026, just 1.2% below its highest close of the past year, so the price appears to assume that Apple’s margins hold near their peak.
How Worried Should Apple Holders Be?
Worried enough to keep an eye on it, but this is a cost problem at a company with sales running ahead of plan, rather than a sign that buyers are leaving. Management said Apple ran short of supply, mostly of Macs and to a lesser extent of iPhones and iPads. The company called the shortfall a demand forecast issue, with the iPhone and the Mac doing remarkably better than it expected. Management also said Apple gained share globally during the quarter, according to IDC. Management has not said how long memory prices will keep climbing, noting only that it sees them still rising beyond September.
The stock has fallen harder than the broader market during previous market-wide shocks. In the 2025 US tariff shock, Apple stock fell 30.0%, compared with 19.0% for the S&P 500. During the 2022 inflation shock, it fell 28%, against 24% for the index.
Apple’s price rises and its higher memory bill both show up in gross margin. That makes gross margin the number to watch at Apple’s next report, which will cover the September quarter.
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