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

Apple's latest financial results beat analysts' expectations, driven by strong iPhone sales and increased revenue from services. However, rising costs associated with artificial intelligence (AI) will impact the company's profit margins. Apple CEO John Ternus, who succeeded Tim Cook in September, expressed optimism about the upcoming holiday season sales of new products, including the foldable Duo.

CFO Kevan Parekh cautioned that Apple's gross margin, which had been 47.9% in the previous quarter, would decrease slightly to between 45% and 46% by year-end. This decline is primarily due to higher memory costs and some expenses related to the rollout of Siri AI. Apple has been working to enhance its digital assistant by partnering with Google to integrate Gemini.

The company defended its AI investments, stating that AI offers compelling reasons for customers to upgrade and provides opportunities for third-party apps and partnerships. In September, Apple released three new iPhones (18 Pro, 18 Pro Max, and the folding Duo) alongside two new desktop computers. Additional AI-related products launched during the month of October included a Siri-powered smart display called HomeView and a MacBook Pro with a touchscreen for the first time.

Despite criticism for falling behind in the AI race, Apple anticipates spending $11 billion on capital investments over the next year, compared to the combined spending of major competitors, which is projected to exceed $700 billion.