Key Takeaways
- Citi maintains its Buy recommendation on Apple (AAPL) stock with a $315 target price, though 2026 and 2027 EPS projections were reduced by $0.06 and $0.04.
- Projections show DRAM costs climbing 50% during Q2 2026, followed by a 100% increase in the latter half of the year, impacting all smartphone manufacturers.
- For Apple’s product portfolio, memory components represent approximately 9% of iPhone manufacturing expenses and 15% for iPads and Macs.
- The firm projects a 140 basis-point impact on Apple’s gross margins throughout 2026, declining to 48 basis points the following year.
- Recent product introductions including the $599 iPhone 17e and $599 MacBook Neo demonstrate Apple’s strategic pricing flexibility amid rising costs.
A significant surge in memory component pricing is creating challenges throughout the smartphone industry. In a Sunday research note, Citi’s Atif Malik highlighted projections showing DRAM expenses climbing sharply — up 50% during the second quarter of 2026, followed by a doubling in the year’s second half. While this presents difficulties for hardware manufacturers generally, Apple’s situation carries additional nuances.
The investment bank adjusted its fiscal 2026 earnings per share projection for Apple downward by $0.06, with a further $0.04 reduction for 2027. These modifications account for anticipated margin compression stemming from escalating component expenses. Nevertheless, Citi maintained its Buy recommendation alongside its $315 target price.
Shares of Apple traded approximately 0.7% lower at $255.81 during Monday’s morning session. The technology giant’s stock has declined roughly 5.3% since the start of the year entering this week.
Memory components represent a substantial cost factor for Apple. According to Citi’s analysis, these parts constitute about 9% of iPhone production costs while reaching 15% for iPad and Mac devices. Given the projected magnitude of DRAM price increases, the cumulative impact becomes significant.
However, Malik contends that Apple possesses superior capabilities to navigate this pressure compared to industry peers.
“We believe Apple’s procurement team and purchasing strategies have improved over the years,” he wrote. “And Apple likely has the best negotiation power among all smartphone vendors.”
Margin Compression Expected
The investment firm calculates that surging memory prices will create a 140 basis-point headwind for Apple’s gross profit margins throughout 2026. This pressure moderates to 48 basis points during 2027 as DRAM pricing is anticipated to normalize. Projections for 2028 remain unaltered.
Smaller competitors lacking comparable purchasing power will likely experience more severe impacts. Citi suggests this dynamic could paradoxically benefit Apple by enabling market share gains as rivals face greater difficulty managing their expense structures.
The firm left its iPhone volume projections unchanged — anticipating 1.3% expansion in 2026 reaching approximately 246 million units, followed by 5.9% growth in 2027 to roughly 262 million units.
Recent Product Releases Demonstrate Adaptability
Apple executed an unexpected strategy last week by introducing two products with significantly reduced entry prices. The iPhone 17e debuts at $599, substantially below the $799 starting point for the standard iPhone 17. Similarly, the MacBook Neo launches at $599 — representing a 40% reduction versus the previous $999 MacBook Air.
Evercore ISI’s Amit Daryanani cited these launches as evidence that Apple is navigating inflationary pressures more effectively than current market valuations suggest.
“We think investors are underappreciating how well AAPL is perhaps managing through the memory inflation issue,” Daryanani wrote. Evercore rates the stock Outperform with a $330 price target.
Malik also emphasized Apple’s capacity to modify pricing throughout its product range and adjust component selections to counterbalance cost increases. The company has already implemented price increases on select MacBook configurations while maintaining iPhone pricing stability in certain models.
The analyst referenced Apple’s services division and artificial intelligence initiatives as additional supportive factors. An anticipated Siri enhancement utilizing Google’s Gemini technology is scheduled for release this year. Apple’s active device ecosystem encompasses approximately 2.5 billion units globally.
Get 3 Free Stock Ebooks
Discover top-performing stocks in AI, Crypto, and Technology with expert analysis.
- Top 10 AI Stocks - Leading AI companies
- Top 10 Crypto Stocks - Blockchain leaders
- Top 10 Tech Stocks - Tech giants
