Yesterday, Apple (Nasdaq: AAPL) reported its fourth-quarter results, which closed out its fiscal 2026 financial year.

On the surface, the results were exceptionally strong, with Apple exceeding Wall Street’s expectations on the most important metrics. But after announcing its results, AAPL shares fell, and today in early morning trading they are down. Here’s what you need to know.

Apple’s Q4 beat expectations

Wall Street had some lofty expectations for Apple going into its Q4 2026 earnings report. Analysts had a consensus expectation of Apple delivering $113.46 billion in revenue and earnings per share (EPS) of $2.00.

Apple topped both.

The company ended up reporting $114.5 billion in revenue and an EPS of $2.10. But things were even better: Its all-important iPhone revenue for the quarter was $57.58 billion, beating analyst expectations by more than a billion dollars, suggesting that, despite price hikes, demand for Apple’s smartphones remains strong. Mac revenue came in at $10.79 billion, also beating analyst expectations by more than a billion dollars.

“Today, Apple is proud to report a September quarter revenue record of $114.5 billion, up 12 percent from a year ago,” Apple CEO John Ternus said, “with iPhone reaching a September quarter record and Services reaching an all-time high, capping off our best fiscal year ever.”

Still, Apple shares fell after its earnings report, which was released after the closing bell yesterday. And today, the company’s stock price is down around 2% as of the time of this writing to $327.25.

But why?

Guidance matters more than results

Investors love great, record-setting results. But if they love one thing more than results, it’s guidance showing the future is rosy for the company.

After Apple reported its Q4 results yesterday, it also issued guidance for its current quarter, which is Q1 of fiscal 2027. The quarter is arguably Apple’s most important as it’s the first full quarter with the new iPhone on sale, and it covers the all-important holiday period.

On the sales front, things look positive: Apple is forecasting a record Q1 revenue of $158.18 billion. However, revenue isn’t profit, which comes from the margins on its sales. And Apple’s reported gross margin guidance for Q1 wasn’t what investors wanted to hear.

Apple said it expects gross margins for the quarter to be between 45% and 46%. As CNBC noted, analysts expected Apple to guide gross margins to 46.3%. Either way, those gross margins are expected to be well below Apple’s Q4 gross margins of 47.9%.

The lower-than-expected gross-margin guidance seems to be the main driver of AAPL’s stock price drop today.

Why are Apple’s gross margins expected to decline?

But why are Apple’s gross margins expected to decline when the company has raised prices on most of its products in recent months?

You can blame the so-called RAMageddon—the skyrocketing cost of memory, which AI hyperscalers are gobbling up to power their data centers, leaving consumer electronics companies like Apple forced to pay more for an increasingly scarce component that used to be relatively inexpensive.

Apple chief financial officer Kevan Parekh told analysts that its expected lower margins for Q1 “includes primarily the impact of higher memory costs” in addition to “some costs related to the ramp of Siri AI,” the company’s revamped AI chatbot.

The higher consumer prices but lower-margins discrepancy shows that Apple isn’t passing the full cost of higher memory prices onto customers; instead, it’s absorbing some of those costs to keep product prices rising even further, which could potentially put consumers off upgrading.