The iPhone maker's shares fell nearly 10 per cent in early trading, putting the company on course for its worst trading session since the market turmoil triggered by the COVID-19 pandemic in March 2020.
If the losses are sustained, Apple would lose close to $500 billion in market value, while AI chipmaker Nvidia would regain its position as the world's most valuable publicly traded company just days after Apple reclaimed the title.
AI Boom Tightens Supply of Critical Components
Apple attributed its cautious outlook to mounting shortages of key components as technology companies continue to compete aggressively for semiconductors and memory chips needed to power artificial intelligence data centres.
Speaking during what was his final earnings call as Chief Executive Officer before handing over to John Ternus in September, Tim Cook described the supply challenges as severe.
Cook, who will become Executive Chairman after the leadership transition, acknowledged that Apple had limited flexibility to overcome the shortages.
He said the supply constraints had become "very significant," noting that the company had few remaining options to offset their impact.
Industry analysts said Cook's comments highlighted the growing strain across global technology supply chains.
“If even at Apple's scale they are saying they are out all supply chain flexibility, it's really bad for everyone,” said Ben Bajarin, Chief Executive Officer of technology consultancy Creative Strategies.
Revenue Forecast Misses Market Expectations
Although Apple reported solid financial results for the June quarter, investors focused on the company's outlook for the current quarter.
Apple forecast revenue growth of between 9 per cent and 11 per cent, below Wall Street expectations of around 12 per cent.
The weaker guidance overshadowed healthy demand for the company's iPhone and Mac product lines, with management explaining that shortages of processors were preventing Apple from fully meeting customer orders.
Cook also revealed that Apple had previously softened the impact of rising memory prices by relying on stockpiled inventory, but warned that those reserves were now being depleted.
The company said increasing competition for advanced chip manufacturing capacity—driven largely by heavy investment in AI infrastructure by major technology firms—has significantly tightened global supplies.
Slower Services Growth Raises Fresh Concerns
Beyond hardware constraints, investors were also unsettled by slower growth in Apple's high-margin services business.
The services division, which includes the App Store, Apple Music, Apple TV and other subscription offerings, has become an increasingly important source of revenue and profitability for the company.
Analysts noted that the slowdown came despite strong iPhone sales, which traditionally drive increased spending across Apple's digital ecosystem.
There are also concerns that any future increase in iPhone prices—widely expected alongside the launch of Apple's next smartphone lineup in September—could further affect growth in both hardware sales and services revenue.
Morgan Stanley analysts said the latest results raised broader questions about Apple's competitive position.
“Apple's leverage over the supply chain appears to be in question and it's not clear that AI is serving as any measurable tailwind to products or services, with its future monetization impact still uncertain,” the analysts said.
They added: “In fact, one could argue App Store softness might even be a result of AI re-prioritizing customer time.”
Analysts Offer Mixed Outlook
Despite the market reaction, some analysts believe Apple has successfully navigated price increases in the past without significantly weakening consumer demand.
Others pointed to the company's recently introduced financing partnership with Klarna in the United States, which allows customers to purchase Apple devices through monthly payment plans, as a factor that could help cushion the impact of any future price adjustments.
Following Apple's earnings announcement, at least four brokerage firms lowered their price targets for the stock, while three raised theirs.
According to LSEG data, the median analyst price target now stands at $330 per share, approximately $3 below the stock's previous closing price.
Before Friday's decline, Apple shares had gained 22.7 per cent since the start of the year, reflecting strong investor optimism around the company's long-term growth prospects.
However, the latest earnings outlook suggests that even one of the world's most influential technology companies is not immune to the supply chain disruptions being fuelled by the rapid expansion of artificial intelligence infrastructure.