Strong results fail to prevent after-hours drop of up to 4%
Share price already above average analyst target, raising valuation concerns
Korean retail investors holding 6 trillion won cool their buying
iPhone sales up 17%, but rising memory prices weigh on margins
Apple shares tumbled as much as 4% in after-hours trading Monday despite a strong quarterly earnings report. Rising memory chip prices are adding to cost pressures, while concerns about slowing growth in services and China are clouding the outlook for a stock in which Korean investors hold more than 6 trillion won ($4.47 billion).
Apple reported its third-quarter results (July–September) on Monday (local time), but the strong numbers did little to lift the stock. Shares closed down 1.83% at $338.32 in regular New York trading, and the decline deepened to as much as 4% in after-hours trade following the earnings release.
Apple's third-quarter sales came in at $114.48 billion, up roughly 12% from a year earlier and ahead of the market consensus of $113.39 billion. The beat, however, was limited to about 1%. Gross margin, excluding the effect of tariff refunds, held up at 46.9%, but analysts expect margin pressure to intensify in the current quarter.
The share price weakness had been widely anticipated even before the results. Apple's stock had already been trading above the average analyst price target of around $320, making further gains on earnings alone a difficult case to make. According to S&P Global, Apple's forward price-to-earnings ratio based on 2027 earnings estimates stands at around 33 times — nearly 30% above its five-year average — reflecting strong expectations for future growth already baked into the price.
Analysts say the quality of Apple's growth has become more important than revenue expansion itself. "We are at a point where results that merely meet or slightly beat consensus are unlikely to support the share price," said Jo Jae-un, an analyst at Daishin Securities. "In the previous quarter, disappointing guidance sent the stock down as much as 7.8% in after-hours trading, so investors need to keep the risk of de-rating in mind rather than focusing solely on the headline numbers."
With the gloomy share price outlook contrasting with the solid results, Korean retail investors showed little appetite to add to positions ahead of the earnings release. Apple remains one of the most widely held foreign stocks among Korean individual investors, with holdings of nearly 6.87 trillion won. Yet the stock has failed to crack the top 50 in net purchase rankings over both the past month and the past three months. Net purchases over the past six months totaled only about $144 million, underscoring how subdued the buying momentum has become.
Beyond iPhone revenue, analysts say sustained growth in the high-margin services business and a recovery in China are essential for Apple to demonstrate the durability of its earnings trajectory. iPhone sales reached $57.58 billion, up 17% year on year and ahead of market expectations. Greater China revenue growth, however, came in at 21% — below expectations — and services revenue also fell slightly short of forecasts.
Concerns that margin pressure will become more pronounced in the coming quarter are adding to the headwinds. Apple guided for a gross margin of 45% to 46% in the next quarter, below the current quarter's level when tariff refunds are excluded. The company also projected services revenue growth of 8% to 9%, short of the market estimate of 10.7%.
"As the trend of narrowing revenue surprises continues, the key variable for the share price will be whether Apple can sustain its growth rate and margins beyond this quarter's results," Jo said. "Investors should watch the early reception to the iPhone Duo and keep a close eye on any further slowdown in high-margin segments."
A shortage in memory chip supply is also pushing up Apple's input costs. Goldman Sachs said Monday that the average selling prices of NAND flash memory from Samsung Electronics and SK hynix are expected to rise 34% and 30%, respectively, in 2027 compared with this year. The bank said prices are unlikely to fall as demand from data centers and enterprise solid-state drives continues to absorb available supply.
kacew@heraldcorp.com
