Does Apple's AI Opportunity Outweigh Component Cost Inflation?

Apple's cost pressures are real, but the growth story is bigger

Apple’s latest Wall Street price targets

Wedbush:$350 (outperform).
Goldman Sachs:$330 (buy).
JPMorgan:$325 (overweight).
BofA Securities:$325 (buy).
Morgan Stanley:$315 (overweight).
Sources: Yahoo Finance, Investing.com

Despite memory cost inflation being a big deal, it still doesn't fundamentally impact Apple’s tremendous earnings power, Bernstein’s Mark Newman shared in a CNBC interview.

That’s not to say he doesn’t expect iPhone production costs to rise, though.

Heightened component costs could push iPhone prices up by as much as 15%, Newman added, while bumping the overall average selling price by nearly 12% as some customers trade down to cheaper models.

That increase is substantial, and it comes down to a staggering 237% surge in mobile DRAM contract prices since Q2 2025, along with a 70% jump in NAND.

Despite the pressures, Newman feels that Apple separates itself from the pack through its superb execution.

He says Apple is “managing better than competition,” led by unmatched scale advantages, supplier leverage, product mix, and durable pricing power.

To his point, Apple has evolved into a powerful platform company with a walled-garden ecosystem that locks users in.

That matters a ton when costs spike.

That’s why even with the memory pressures in play, Bernstein’s modeling points to iPhone gross margins dropping by nearly 1.5 percentage points by Q4 2027.

Though that’s meaningful, Newman believes the EPS impact will be substantially offset by higher-margin services revenue, mix shift, and aggressive cost management.

Apple’s AI ambitions outweigh rising costs

Newman’s bullish take on Apple centers around AI.

Instead of AI technology showing up just as a chatbot, Newman says Apple is deploying it as a system-level layer, making its ecosystem stickier.

What makes this possible is a hybrid design that handles as many requests on the device and reroutes the heavier ones (advanced reasoning) through Private Cloud Compute using Google’s Gemini.

That robust setup ensures Apple’s privacy positioning remains firmly intact, while delivering cutting-edge responses and features.

Unlike many of its peers, Apple isn’t in the race to win AI benchmarks or translate those gains into tangible financial gains. It just needs those features to change behavior and pave the way for healthier services revenue.

In fact, some of the earlier modeling supports that logic.

Morgan Stanley’s April 2025 survey, as reported by Investing.com, was an early “tell” that Apple’s AI pitch would likely move the needle.

At the time, 51% of iPhone owners said they were “extremely likely” to upgrade in the next 12 months. More importantly, those respondents, compared with those in the previous fall, showed a 12% higher willingness to pay $9.11 per month for Apple Intelligence.

For perspective, the significant Siri 2.0 (the next phase of Apple Intelligence) is reportedly set to launch in spring 2026, according to Mac Rumors.

Ironically, Apple stock was initially blasted for lagging in the AI realm. However, as we’ve gotten deeper into the cycle, Newman argues that investors have actually felt a lot “more comfortable” amid the AI wars.

Source: TheStreet

NB: A 237% surge in mobile DRAM contract prices since Q2 2025 is spot pricing. Apple does not buy on the current market but what is effectively on a futures market. It would behoove the reader to calculate the quantity of orders for e.g. SoC and Memory Apple places vs. hyperscalers. If "51% of iPhone owners said they were “extremely likely” to upgrade in the next 12 months" that's 850 million people worldwide.