Apple (AAPL): Best June Quarter Ever, Stock Down 6% — Tim Cook Called It a ”100-Year Flood”

Apple Inc. (AAPL) Q3 FY2026 — Apple reported fiscal Q3 2026 (quarter ended June 27) after the close on July 30. Revenue was $109.42B, +16% y/y, beating the ~$108.7B consensus. Diluted EPS was $2.02, +29%, versus ~$1.89 expected. Gross margin was 50.1%. Every geographic segment set a June-quarter record; iPhone (+21.7% to $54.25B), Mac (+28.7% to $10.35B) and Services (+12.1% to $30.74B) all set records, and Greater China grew 22.4% to $18.82B. The stock closed at $333.43 and then fell about 6% after hours, to roughly $313, on the September guide. Why: strip the tariff refunds and gross margin runs 49.3% (March) to 48.1% (June) to a guided ~46.5% (September) — 280 bps in two quarters, which the CFO said is more than 100% explained by memory cost. Our owner-earnings DCF lands near $230. Our call: HOLD, 3/5 — hold for the quality, don't buy here. The headline was flawless and the market still sold it. Here is what the headline hides: $2.02 of EPS includes $0.11 from tariff refunds, and the 50.1% gross margin includes about 2 points of the same. Ex-refund, that's $1.91 and 48.1% — still June-quarter records, but a very different base for 2027. Tim Cook said Apple raised iPad and Mac prices because it is in "a 100-year flood on memory pricing, with exponential increases," that DRAM has three suppliers, and that memory pricing keeps climbing past September. The balance sheet shows the hedge: inventories nearly doubled from $5.7B at fiscal year-end to $11.1B while revenue grew 16% — and Cook said that carry-in benefit decays after September. Three things almost nobody covered: (1) the Services flywheel inverted — Products grew 18% while Services grew 12%, so Apple's margin expansion came from hardware, not from high-margin mix; (2) nine-month capex was $6.8B, DOWN 28% y/y, under 1.5% of revenue, while R&D rose 32% — Apple is the only mega-cap running its AI bill through the income statement instead of the balance sheet; (3) the September revenue guide-down to +9-11% is a demand-forecast problem, not weak demand — Cook said iPhone and Mac are outselling Apple's own forecast and advanced-node supply can't keep up. This was also Cook's 90th and final earnings call; John Ternus becomes CEO on September 1 and inherits the December quarter management refused to guide. THE CALL: HOLD (3/5, A MAGNIFICENT BUSINESS AT AN UNFORGIVING PRICE) — base-case value ~$230.00 vs ~$333.43 today. KEY METRICS: - Revenue $109.42B, +16.4% y/y (June-quarter record) - Diluted EPS $2.02, +29% ($1.91 excluding $0.11 of tariff refunds) - Gross margin 50.1% (48.1% ex-tariff refunds); Products 40.1%, Services 75.6% - iPhone $54.25B +21.7% | Mac $10.35B +28.7% | Services $30.74B +12.1% | iPad $6.19B -5.9% - Greater China $18.82B, +22.4% y/y (nine months +30%) - R&D $11.73B, +32.3% y/y — 10.7% of revenue - Nine-month capex $6.80B, -28% y/y; nine-month operating cash flow $117.0B, +43% - Inventories $11.09B vs $5.72B at Sept 27, 2025 (+94%) - Cash & securities ~$147B vs ~$84B debt (~$62B net cash); $25.8B buybacks + $4B dividends in the quarter - Q4 FY26 guide: revenue +9-11%, gross margin 47-48% (incl ~1pt tariff refunds), opex $19.1-19.4B, tax ~16.5% What to watch: What we're watching: DRAM pricing rolling over, which would let the ~46.5% underlying gross margin snap back toward 49%; the September supply constraints clearing so deferred iPhone and Mac revenue lands in December; Services re-accelerating once the ~2.5pt FX drag laps; and Siri AI actually driving iCloud+ upgrades. The risks: memory costs climbing past September as Cook warned, the inventory buffer emptying, gross margin printing a 45-handle in FY27, and Services decelerating below 10% as management's own guide implies. At ~38x trailing earnings and a 2.8% free-cash-flow yield there is no cushion. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.