Apple beat sales and profit expectations on Monday, November 3, announcing a record revenue haul for the July to September quarter, but the company warned that rising costs tied to artificial intelligence will squeeze its margins through the holiday season.
The results, according to IOL, were driven by strong iPhone sales and growing services revenue. Yet the optimism was tempered by a sober admission from chief financial officer Kevan Parekh, who told analysts that gross margin will slip from the September quarter's 47.9 percent to a range of 45 to 46 percent.
Record Quarter, Ambitious Lineup
Chief executive John Ternus, who took over from Tim Cook in September, struck a confident tone ahead of the crucial holiday shopping period.
We're closing the year with our most ambitious lineup yet.
Ternus pointed to the company's biggest product refresh in years. In September, Apple launched three new phones: the 18 Pro, the 18 Pro Max, and the Duo, its first folding device. It also introduced two new desktop computers. In October, the company unveiled HomeView, a smart display powered by Siri AI, plus a MacBook Pro with a touchscreen for the first time.
The company has also changed how customers pay for its devices. In July it launched Apple Upgrade, a leasing program that lets United States customers spread the cost of an iPhone or other devices over monthly instalments.
Why Are AI Costs Eating Into Apple's Profits?
The margin warning has two main drivers, according to Parekh.
We expect gross margin to be between 45 percent and 46 percent. This includes primarily the impact of higher memory costs, as well as some costs related to the ramp of Siri AI.
Apple overhauled Siri in June through a partnership with Google, using the Gemini model to power the upgraded assistant. That decision to lean on outside AI infrastructure, rather than build its own at massive expense, is now central to the company's financial strategy.
Despite the cost pressure, Parekh defended the investment as a driver of future sales. He said AI offers a compelling reason for customers to upgrade and switch, and pointed to opportunities across third-party apps, partnerships, and the company's own services.
Apple's Lean AI Strategy Versus Big Tech's Spending Spree
For years, Apple was criticised for lagging in the AI race. That criticism now looks misplaced. Analysts expected the Cupertino giant to spend just 11 billion dollars in the fiscal year that ended in September, according to BNN Bloomberg's report.
That figure is a fraction of what its rivals are pouring into the technology. Microsoft, Alphabet, Amazon and Meta are collectively on track to spend more than 700 billion dollars on capital investment this year, much of it on AI infrastructure, according to analyst estimates. That combined outlay is roughly the size of the entire economy of Argentina or Belgium.
Meta said in July it expects to spend 145 billion dollars this year, nearly double its 2026 outlay. Amazon last week forecast 220 billion dollars in spending, and Microsoft said it expects to reach 170 billion dollars by year end. Alphabet's latest forecast puts its 2026 spending between 195 billion and 205 billion dollars, as reported by Yahoo Finance's coverage of the results.
Apple, in short, is letting its peers foot the bill for the data centres while it buys the intelligence on favourable terms. It is a strategy that mirrors a broader truth about the modern tech economy: the companies that own the infrastructure absorb the risk, while those that control the customer relationship harvest the profit.
Legal Battle With OpenAI Adds Another Layer
The picture is not entirely smooth. Apple is suing OpenAI, one of its closest AI partners, alleging the company orchestrated a campaign to steal Apple's trade secrets as it attempts to build its own consumer hardware device. OpenAI's ChatGPT has been integrated into Apple products since 2024.
The lawsuit, filed in July, signals that even profitable partnerships in the AI sector rest on contested ground. Apple wants access to the best models, but it also wants to guard the ecosystem that makes its devices so lucrative.
What This Means for the Tech Sector
Apple's results arrive at a moment when the AI industry is being asked a simple question: who actually makes money from this technology? The hardware makers and cloud giants are spending unprecedented sums. Apple, by contrast, is posting record revenue while spending a comparative pittance.
Its margin warning shows the strategy is not free. Memory costs and the Siri AI ramp will shave more than a full percentage point off gross margin in the December quarter. But if the holiday season delivers the sales Ternus is promising, the company will have shown that in the AI economy, restraint can pay.
FAQ
Did Apple beat expectations in its latest quarter?
Yes. On Monday, November 3, Apple reported a revenue record for the July to September quarter, exceeding analysts' sales and profit forecasts, driven by iPhone sales and services revenue.
Why will Apple's margins fall in the holiday quarter?
CFO Kevan Parekh said gross margin will drop to between 45 and 46 percent, from 47.9 percent, mainly because of higher memory costs and expenses tied to ramping up Siri AI.
How much is Apple spending on AI compared to its rivals?
Analysts expected Apple to spend about 11 billion dollars in its last fiscal year, while Microsoft, Alphabet, Amazon and Meta are on track to spend more than 700 billion dollars combined this year.
What new products did Apple launch?
The company launched the iPhone 18 Pro, 18 Pro Max and its first folding phone, the Duo, in September, followed by the HomeView smart display and a touchscreen MacBook Pro in October.