J.P. Morgan: Apple hardware drives fourth-quarter growth as slower services and memory costs weigh on earnings outlook

Where did the fourth-quarter upside come from?

In the fiscal fourth quarter ended September 2026, Apple reported revenue of 114.5 billion dollars, up 12% year over year and above the market consensus of 113.5 billion dollars; iPhone and Mac were the main sources of the revenue beat.
iPhone revenue was 57.6 billion dollars, up 17% year over year and above the market consensus of 56.5 billion dollars; services revenue was 31.6 billion dollars, up 10% year over year and in line with consensus.
Earnings per share were 2.10 dollars, above the market consensus of 2.00 dollars. Tariff refunds contributed approximately 0.05 dollars, and the tax rate of 15% was also below JPMorgan’s forecast of 17.5%.

JPMorgan raised its fiscal 2027 product revenue forecast, mainly reflecting stronger pricing for Mac, iPad and iPhone. The bank believes the new device cycle will be the main driver of revenue and earnings growth before monetization of new services makes a significant contribution.
However, the slowdown in the services growth outlook means high-margin services are growing more slowly within revenue than lower-margin products; meanwhile, gross margins for both services and products are under pressure. Fourth-quarter gross margin was 76.0% for services and 37.2% for products.
Accordingly, the bank lowered its fiscal 2028 adjusted earnings-per-share forecast from 10.60 dollars to 10.00 dollars, a reduction of 5.6%.

Apple guided to fiscal first-quarter 2027 services revenue growth of 8%–9% year over year, below JPMorgan’s prior forecast of 13% and the market consensus of 12%; the company attributed the pressure to third-party licensing and foreign exchange.
The company guided to an overall gross margin of 45%–46% for the same period, with the midpoint approximately 1.4 percentage points below the fourth-quarter figure of 46.9% excluding tariff refunds. Management said the decline was mainly due to rising memory costs and costs related to the rollout of Siri AI.
Management expects memory costs to continue rising after the quarter ending in December, while the cushion provided by inventory on hand will gradually diminish. Memory supply constraints will also affect Mac and iPad in the quarter ending in December; iPhone Duo supply remains tight, and it is unclear when supply and demand will balance.
Apple expects operating expenses of 20.4 billion–20.8 billion dollars in the current quarter, above the market consensus of 19.9 billion dollars, reflecting continued AI investment.

The bank believes the hardware product cycle can expand Apple’s installed base of more than 2.5 billion devices, creating opportunities to extend services to more products and regions and helping services growth gradually recover; the revamped Siri AI and its monetization are part of this assessment.
JPMorgan maintained its Overweight rating and lowered its December 2027 price target from 360 dollars to 355 dollars. The target is based on a price-to-earnings multiple of approximately 35 times its calendar-year 2028 earnings forecast; the bank believes the iPhone 18 product cycle and services growth outlook support this valuation.