Apple beats sales and profit expectations but AI costs weigh on holiday sales

Apple reported strong earnings for the July-September quarter on Monday, surpassing analysts' expectations. The company's record revenue was largely driven by iPhone sales and growth in services. CEO John Ternus, who assumed leadership from Tim Cook in September, expressed optimism about the upcoming holiday season and hinted at the popularity of the company's latest products, including the foldable Duo.

However, CFO Kevan Parekh warned that gross margins would slow slightly in the final stretch of the year compared to the 47.9% margin in the September quarter. The margin decrease is primarily due to higher memory costs and some expenses related to the rollout of Siri AI. In June, Apple revamped Siri by partnering with Google's Gemini model to enhance the digital assistant's capabilities.

Despite acknowledging the potential benefits of AI for consumers and third-party applications, Parekh reassured investors that AI costs will impact Apple's gross margins. In September, Apple launched three new phones - the 18 Pro, 18 Pro Max, and the first folding phone, Duo - along with two new desktop computers and a smart display powered by Siri AI called HomeView.

Additionally, the company introduced a MacBook Pro with a touchscreen for the first time and launched a leasing program called Apple Upgrade. While Apple has been criticized for lagging behind in the AI race, the company expects to benefit from the substantial spending of its rivals on AI infrastructure.