Apple's shares fell 7.4% on July 31, wiping out $426 billion in market value in just two days, even after the company posted its best third quarter in five years. Wall Street focused on weak fourth-quarter guidance and supply chain strain from soaring memory chip costs, while Apple leans on a new financing deal with Klarna to keep demand steady ahead of new product launches.
The stock's 7.4% drop on July 31 erased $426 billion in market capitalization in just two days, despite Apple reporting its best third quarter in five years.
iPhone sales drive Apple's best Q3 in five years
Net sales grew 16.4% year over year in fiscal Q3 2026, driven by a 21.7% jump in iPhone sales. Overall product sales climbed 18.1%, the first Q3 since fiscal 2021 in which product growth outpaced services. Services, which include iCloud, Apple Card, and Apple Music, had grown steadily in the double digits for years while product sales stalled.
Price hikes raise pull-forward demand concerns
Apple raised prices in June on the Mac, iPad, Apple TV, HomePod, and Vision Pro after memory chip costs surged. Tim Cook told analysts on the July 30 earnings call that Apple raised prices reluctantly, comparing the jump in memory costs to a once-in-a-century flood. Some investors worry the increases pulled forward demand ahead of the iPhone 18 Pro's September launch, especially with consumers already facing inflation from higher food, gas, and shelter costs.
Wells Fargo analyst Aaron Rakers asked management whether it was seeing a pull-forward in demand. Cook replied that iPhone revenue rose 22.4% over the first nine months of fiscal 2026, roughly matching the 21.7% quarterly growth, so it wasn't obvious demand was being pulled forward. Still, Apple's guidance of just 9% to 11% net sales growth for the fourth quarter suggests some pull-forward, or simple caution before its busiest quarter.
Chip shortage squeezes Apple's supply chain
Apple's rising costs may be an even bigger concern than its guidance. The company said its main bottleneck is sourcing the chips needed for processing, graphics, and AI features in its devices, and stronger-than-expected demand has arguably left its supply chain more constrained than before. Cook said on the July 30 earnings call: "The supply chain just has less flexibility in it than normal."
The near-term risk, arguably, is that Apple absorbs more of these costs since consumers are already stretched thin.
Financing deal and premium valuation
To ease that pressure, Apple's new leasing program with Klarna will cost as little as $17.99 a month, pairing buy-now-pay-later financing with carriers' existing multi-year service contracts. That could sustain demand for products such as a foldable iPhone, smart glasses, and an AI-powered pendant, though heavier reliance on consumer leverage is itself a red flag for the broader economy.
Even after the sell-off, Apple trades at 35.3 times earnings, a premium valuation that assumes the company can navigate supply constraints while capitalizing on AI without heavy spending of its own.
Fool contributor Daniel Foelber argues that pairing that AI-driven upgrade cycle with double-digit services growth and stock buybacks could still justify Apple's premium.
Source: Fool
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