Something odd happened. Apple Inc. (NASDAQ: AAPL | AAPL Price Prediction) turned in what many described as a spectacular quarter. The share price did not rise at all. In fact, it is down 5% this year, while the S&P 500 is up slightly less than 2%. Over the past year, Apple stock is up 8%, and the S&P 500 is 15% higher. The market appears to care more about Apple’s costs and lack of an artificial intelligence (AI) product than an iPhone home run.
A Wall Street Journal headline read, “Apple Posts Blowout iPhone Sales, but Investors Focus on Higher Costs.” The big iPhone quarter was expected. The news about high iPhone unit sales came with news of high component costs. These components are mostly memory hardware and chips.
Apple failed to surprise Wall Street. However, it did prove that iPhones can be sold without being AI-enabled. Revenue for the most recent quarter hit $143.8 billion, up 16%, and per-share earnings rose 19% to $2.84. iPhone revenue rose to $85.2 billion from $69.1 billion in the same quarter a year ago. China has been a problem—until now. Greater China revenue was $25.5 billion, up from $18.5 billion. Apple is taking market share from well-entrenched local manufacturers (some of which have AI in their operating systems).
The Cost of the Future
People apparently forgot that stocks are bought and sold on belief about their futures and not the past. Hardware costs across much of the tech industry have risen because too many successful tech firms need hardware right away.
Lingering in the back of investors’ minds is whether consumers will expect AI features in the next upgrade of iOS, which is still a few months away. Management did not spend much time on that future.
As Apple shares were flat, Microsoft Corp. (NASDAQ: MSFT) stock took a beating after it announced its earnings. The reason for concern was nearly the same as for Apple. Microsoft margins, particularly in its Azure cloud division, are falling. AI-based revenue could not offset that. And Microsoft continues to say it will put tens of billions of dollars into data centers.
Margins, margins, margins. Costs, costs, costs.
Investor focus on the Magnificent 7 has moved to what it costs to be on the list. If data center expenses are going to be huge, the revenue from AI needs to show promising results quickly. Revenue, therefore, cannot be married by margin erosion. So far, the pattern is ugly.
Wall Street wants to know what the cost of the future is.
Apple Stock Price Prediction and Forecast 2025–2030
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