Apple (AAPL) reported its first quarter earnings on Thursday, beating Wall Street’s expectations on the top and bottom lines, on strong iPhone sales.
Apple’s iPhone revenue topped out at an all-time record of $85.3 billion in the quarter, well ahead of the $78.3 billion analysts were anticipating. The company recorded iPhone sales of $69.1 billion in the same quarter last year.
But during Apple’s earnings call, CEO Tim Cook said that the global memory crunch is going to hit the company’s margins going forward. Apple projects margins of between 48% and 49% in Q2. Gross margins in Q1 were 48%.
Apple stock edged lower in premarket trading on Friday, retracing an initial slight gain soon after the earnings release.
The AI data center buildout has put a massive strain on the market for memory chips, which could impact the price of smartphones, laptops, and any other consumer or enterprise devices, unless manufacturers decided to swallow the cost.
Overall, Apple reported earnings per share (EPS) of $2.84 on revenue of $143.8 billion. The Street was anticipating EPS of $2.68 on revenue of $138.4 billion, according to Bloomberg analyst consensus estimates.
Apple’s Services business, its second-largest behind the iPhone, brought in $30 billion, in line with expectations. Analysts were calling for $30 billion. Mac and iPad revenue were $8.4 billion and $8.6 billion, respectively, while Wearables revenue hit $11.5 billion.
Importantly, China sales improved to $25.5 billion during the quarter, climbing nearly 38% year over year. That marks a major turnaround for the region after sales declined in three out of the last four quarters.
Apple’s earnings come after news broke that the company is acquiring startup Q.AI. The Information reports that the acquisition will cost Apple $2 billion, and that the company’s technology can read facial skin micro-movements, which could be used to help Apple support “non-verbal discussions” with an AI assistant.
Earlier this month, Apple and Google (GOOG, GOOGL) issued a joint statement saying that the iPhone maker will use Google’s Gemini models and cloud technology to power its AI efforts, including a more personalized Siri due out later this year.
A general view of the Apple retail store on Nanjing East Road in Shanghai, China, on January 29, 2026. (Photo by Ying Tang/NurPhoto via Getty Images) · NurPhoto via Getty Images
Apple’s AI is lagging behind smartphone rivals Samsung, which also uses Google’s models. The company has been promising a fully revamped Siri since 2024, but has had to delay it until later this year due to quality issues.
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Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter at @DanielHowley.