What Happens To Apple Stock If Its Margin Keeps Slipping?
Apple (AAPL) reported a record June quarter, with revenue up 16%. The stock has returned 42% over the past year against 17% for the S&P 500. That is a price built on everything going right, and by Apple’s own guide the margin behind it is already giving way.
Apple Has Never Had A Better June Quarter
iPhone revenue grew 22%, and Mac revenue grew 29% in the June quarter, far better than management had planned. Supply could not keep up, and the main bottleneck was the advanced nodes Apple’s chips are built on.
The stock trades at 37.7 times trailing earnings, close to the top of a ten-year range of 12.6 to 39.3. A multiple that high is a bet that the record repeats. The threat to that bet is the price Apple pays for memory.
But Apple Is Paying A Lot More For Memory
Memory prices are in what management calls a hundred-year flood. Gross margin was 49.3% in the March quarter and 48.1% in the June quarter once a tariff refund worth about two points is stripped out, and the guide puts the September quarter at a 46.5% midpoint without the refund. By the CFO’s own walk, more than the whole of each step is memory cost, and currency barely registers.
The offsets management names are carry-in inventory, cheaper non-memory components, and mix, and it expects the inventory benefit to shrink after the September quarter while memory prices keep climbing. The DRAM market has three suppliers, and management says more of them would help supply but not necessarily price.
Apple has raised prices on Mac and iPad, reluctantly by management’s own account, and says it is too early to tell how buyers respond. It has also launched the iPhone Duo, its first foldable, at $2,000.
And Apple Cannot Build Enough To Meet The Demand
The usual way out of a cost squeeze is volume, and Apple cannot take it. The shortage of advanced nodes hit Mac hardest in the June quarter, even as Mac grew 29%, and management expects it to get much worse across iPhone, Mac, and iPad in the September quarter. Revenue growth is guided at 9% to 11% for the September quarter, down from 16% in the June quarter. Only about two and a half points of that step-down is currency. The rest is demand Apple cannot serve.
So a multiple near the top of its range is heading into a quarter where growth and margin are both guided lower. If the multiple slips back toward the middle of its ten-year range, the stock falls even if earnings hold. A margin that gives way one quarter at a time is rarely a risk the market prices all at once.
Watch gross margin when the September quarter is reported. If it comes in below the guided midpoint without the refund, the squeeze is running ahead of the guide.
How Much Of Your Money Should Ride On Apple’s Margin?
That depends on what else you hold and whether you would still own Apple at a lower margin. A squeeze like this builds quietly, and by the time it shows in the numbers, the price has usually moved. Weighing that across everything you own is the job. Since its inception, our rule-based High Quality Portfolio has outperformed its benchmark, a blend of three major indices. And our Option Implied Volatility screen shows how far the market thinks Apple could move while you decide. A market braced for a swing can still miss a slow slide.