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

Apple reported higher-than-expected revenue and profits for the July-September quarter, driven by robust iPhone sales and services revenue, according to the company's first report since CEO John Ternus took over in September. CEO Ternus expressed optimism about the holiday season, particularly with the launch of new products like the foldable Duo, but CFO Kevan Parekh cautioned that gross margins would slightly decrease, ranging between 45% and 46%.

The decrease primarily stems from higher memory costs and some expenses related to the rollout of AI-powered Siri. Apple had recently overhauled Siri with a partnership with Google's Gemini model. The company launched three new iPhones, two desktop computers, a new smart display with Siri AI, and a MacBook Pro with a touchscreen in September, along with an iPhone leasing program.

Despite long-standing criticism for being slow in the AI race, Apple anticipates benefiting from AI spending by its rivals while maintaining a lean investment approach. Analysts estimate that Apple will spend $11 billion on AI-related infrastructure in the fiscal year ending in September, a small fraction of the billions spent by major competitors like Microsoft, Alphabet, Amazon, and Meta. Apple is currently embroiled in a legal dispute with OpenAI over alleged trade secret theft.