Apple reports fiscal Q1 earnings Thursday, and while analysts expect a blowout iPhone 17 quarter, Wall Street's fixated on a different number: memory costs. The AI-driven component shortage that's sent prices skyrocketing could crush margins just as the company enters what CEO Tim Cook calls a major growth cycle. With the stock down 11% from its December peak despite optimistic revenue guidance, investors want answers on how Apple plans to absorb costs that competitors are already struggling with.
Apple heads into its Thursday earnings call with an unusual problem - too much good news fighting against rising costs. The company already told investors in October it expected revenue to climb 10% to 12% in its fiscal first quarter, which would put the top line somewhere between $136.73 billion and $139.22 billion. That confidence came from strong iPhone 17 early demand during the crucial holiday quarter.
But the stock's down nearly 11% since hitting its December 2 peak, and the disconnect reveals what's really worrying investors. According to Morgan Stanley analyst Erik Woodring, Wall Street hasn't properly accounted for the margin impact of surging memory and storage costs. "We don't believe Street has embedded enough of a margin impact from rising memory costs into its FY26 estimates," Woodring wrote in a Monday note, maintaining his buy rating with a $315 price target.
The memory crunch stems from an AI-driven component shortage that's hitting every hardware maker. But Apple faces unique exposure because every product in its lineup - iPhone, Mac, iPad - demands substantial memory and storage. While finance chief Kevan Parekh downplayed the issue in October, saying the company saw "nothing really to note there" on memory pricing, that assessment came before the shortage intensified.
Woodring doesn't expect the cost surge to hit this quarter's results, but warns the impact will mount as the year progresses. "We don't believe consensus still has adjusted to the better than expected iPhone 17 cycle, yet at the same time they haven't adjusted to higher opex and/or gross margin headwinds," he noted. It's a rare moment where might actually beat revenue expectations while disappointing on margins.
