Apple Earnings Preview: Focus on iPhone Growth, AI, and Memory Costs

• Apple guided to $136.73-$139.22 billion in revenue for the quarter, the first full period of iPhone 17 sales, leading analysts to expect a beat despite recent stock weakness
• Rising memory and storage costs due to AI-driven chip shortages pose margin risks, though Morgan Stanley believes the impact won't hit until later in fiscal 2026 as consensus estimates haven't adjusted for higher operating expenses
• CEO Tim Cook faces questions on AI strategy after Apple replaced some internal AI models with Google's Gemini for Apple Intelligence, while analysts note AI monetization remains challenging and rising memory prices may make edge AI applications harder to justify financially

Apple Earnings Preview: Focus on iPhone Growth, AI, and Memory Costs

Earnings Expectations:

Apple reports fiscal Q1 earnings Thursday after market close. Wall Street consensus estimates are $2.67 EPS and $138.48 billion in revenue. The quarter, ending December, represents the first full period of iPhone 17 sales.

Revenue Guidance:

Apple previously projected overall revenue growth of 10-12% and similar double-digit growth for iPhone sales, implying revenue between $136.73 billion and $139.22 billion. This optimistic outlook has led analysts to anticipate a potential beat, though the stock has declined nearly 11% since its December 2 peak.

Key Concern - Memory Costs:

Rising memory and storage component prices driven by AI demand pose a significant risk. Morgan Stanley analyst Erik Woodring (buy rating, $315 price target) believes Wall Street hasn't adequately factored margin impacts from these costs into FY26 estimates. While CFO Kevan Parekh downplayed memory price concerns in October, analysts expect pressure to mount throughout the year.

All Apple devices—iPhones, Macs, and iPads—require substantial memory and storage, raising questions about the company's ability to manage increased component costs during this growth cycle.

AI Strategy Under Scrutiny:

CEO Tim Cook faces questions about Apple's AI approach following the company's decision to integrate Google's Gemini into Apple Intelligence software, replacing some internal models. Cook may also discuss a rumored "more personal" product launching this year leveraging AI advances.

However, Jefferies analyst Edison Lee (hold rating) notes that "AI's commercialization and monetization remains challenging," with unclear consumer use cases and rising memory prices potentially hindering edge AI applications over the next two years.