Key Morningstar Metrics for Apple
- : USD 290.00Fair Value Estimate
- : ★★★Morningstar Rating
- : WideMorningstar Economic Moat Rating
- : MediumMorningstar Uncertainty Rating
In an interview with The Wall Street Journal, Apple AAPL CEO Tim Cook announced plans to raise device prices to offset inflation in memory chip costs. Cook didn’t offer further details on the magnitude or timing of the increases.
Why it matters: Apple has navigated memory inflation well so far, posting record gross margins without raising like-for-like prices. Higher base storage capacities and long-term supply contracts have helped. Now, it appears the firm needs to deploy pricing to avoid hefty margin compression.
- Tight memory supply, due to immense AI infrastructure demand, has pushed prices 3-4 times higher than they were at the end of 2024, with further rises likely. Memory has accounted for about 10% of an iPhone’s cost, but inflation threatens to raise the cost of building an iPhone by 20% or more.
- We expect memory inflation to continue through 2028, but for prices to come back down thereafter as new supply comes online. We believe Apple’s margins can rise again as memory inflation slows, and model this as a one-time step increase to prices.
The bottom line: We raise our fair value estimate for wide-moat Apple to USD 290 per share from USD 270 to account for higher prices in 2027. We expect a marginal headwind to volumes as a result, but for pricing to create a material net increase in revenue. Shares look fairly valued.
- We’ve raised our fiscal 2027 revenue estimate by 4.5%, and lowered our 2027 gross margin estimate by 100 basis points. We expect a strong year of low-teens revenue growth, led by pricing, and for Apple to not pass on inflation fully, but continue to post strong gross margins close to 48%.
- We expect slight outperformance of lower-priced models such as the iPhone 17e and MacBook Neo in 2027, and have trimmed our overall unit shipment expectations to reflect aversion to high prices. Still, we view Apple’s demand as moderately inelastic, resulting in a net positive impact from pricing.
