This Was the Most Important Part of Apple's Earnings Release, and It's Not What You Think

Apple (NASDAQ: AAPL) reported blowout 2026 fiscal first quarter (ended Dec. 27) earnings results last week, with a 23% year-over-year increase in iPhone sales, which CEO Tim Cook described as "simply staggering." There were all sorts of great updates, including strong gross margins and a 16% increase in services revenue.

But the most important update wasn't a good one, and that could impact what happens to Apple stock for the rest of the year.

Image source: Apple.

AI development and constraints

Cook reiterated that demand was high, but supply constraints made it challenging to meet. He noted that pricing for memory is "increasing significantly," and the market took that as a signal that this could continue to impact Apple's margins in the near term. Cook said Apple was in "supply chase mode" in terms of getting what it needs to produce its product.

Gross margin was 48.2% in the quarter, up a full percentage point from the previous year and above the high end of guidance. That's been highly affected by the growing services business, which had a 76.5% gross margin in the quarter. However, devices, specifically iPhones, make up the majority of the business, and they bring the margin lower. Apple is guiding for a gross margin of 48% to 49% in the second quarter.

While management didn't provide full-year guidance, the implication was that there may be some near-term pressure. The strong report portends good things to come for Apple this year. For the long term, investors (and potential investors) should keep monitoring how supply constraints impact Apple's margins.

Jennifer Saibil has positions in Apple. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.