Apple just had its best year ever. So why is its stock falling?

Yesterday, Apple reported its fourth-quarter results, which significantly surpassed Wall Street's expectations for the fiscal year 2026. Despite the strong performance, Apple's stock price fell after the earnings report and remains down in early morning trading. The company reported revenue of $114.5 billion and an EPS of $2.10, both beating expectations.

Apple CEO John Ternus highlighted the achievement, stating that the company is proud of its September quarter revenue record, with iPhone reaching a new record and Services hitting an all-time high. However, investors were more interested in the guidance Apple provided for the next quarter, Q1 of fiscal 2027. While Apple's Q1 revenue forecast of $158.18 billion was positive, its gross margin guidance of between 45% and 46% was below analysts' expectations of 46.3%.

The lower-than-expected margins are primarily due to the rising cost of memory, a component in Apple's devices, which has skyrocketed due to demand from AI hyperscalers. Apple CFO Kevan Parekh noted that the lower margins included increased memory costs and costs related to Apple's AI chatbot, Siri. Despite raising prices on most products, Apple is absorbing some of these higher costs to continue raising prices, potentially discouraging consumers from upgrading.