Key Takeaways
- Citi maintains Buy rating on Apple with $315 target while reducing 2026 EPS by $0.06 and 2027 by $0.04.
- DRAM prices expected to jump 50% by Q2 2026 and double by year-end, creating industrywide pressure.
- Memory components represent approximately 9% of iPhone production costs and 15% for iPad and Mac devices.
- Apple projected to face 140 basis-point margin headwind in 2026, declining to 48 basis points in 2027.
- Recent launches of $599 iPhone 17e and $599 MacBook Neo demonstrate Apple’s cost management capabilities.
A significant surge in memory component pricing looms over the smartphone industry. Citi’s Atif Malik released research Sunday projecting DRAM costs will climb 50% during Q2 2026, then double in the latter half of the year. While this creates challenges across the hardware sector, Apple’s situation warrants closer examination.
Citi reduced Apple’s fiscal 2026 earnings per share forecast by $0.06 and the 2027 projection by $0.04. These adjustments account for anticipated margin compression from escalating component expenses. Nevertheless, the firm maintained its Buy recommendation and $315 valuation target.
Apple shares declined approximately 0.7% to $255.81 in Monday morning trading. The tech giant’s stock has retreated roughly 5.3% since the start of the year.
Memory represents a substantial cost component for Apple. According to Citi’s analysis, it comprises roughly 9% of iPhone production expenses and 15% for iPad and Mac products. With DRAM experiencing the projected price acceleration, the financial impact becomes significant.
However, Malik contends Apple possesses superior capability to navigate this challenge compared to industry peers.
“We believe Apple’s procurement team and purchasing strategies have improved over the years,” he stated. “And Apple likely has the best negotiation power among all smartphone vendors.”
Margin Compression Expected
Citi’s analysis projects the memory price surge will create a 140 basis-point headwind on Apple’s gross profit margins during 2026. This impact moderates to 48 basis points in 2027 as DRAM pricing stabilizes. The 2028 forecast remains unmodified.
Smaller competitors with weaker negotiating leverage face more substantial challenges. Citi anticipates this dynamic could actually benefit Apple by enabling market share gains as rivals grapple with cost structure pressures.
Citi maintained its iPhone unit projections unchanged — 1.3% expansion in 2026 reaching approximately 246 million devices, followed by 5.9% growth in 2027 to roughly 262 million units.
Strategic Product Launches Demonstrate Agility
Apple unveiled two unexpected products last week at significantly reduced price points. The iPhone 17e enters at $599, considerably below the $799 starting price of the regular iPhone 17. The MacBook Neo also debuts at $599 — representing a 40% reduction versus the prior MacBook Air’s $999 price tag.
Evercore ISI’s Amit Daryanani interpreted these launches as proof Apple is navigating inflationary pressures more effectively than market expectations suggest.
“We think investors are underappreciating how well AAPL is perhaps managing through the memory inflation issue,” Daryanani noted. Evercore assigns an Outperform rating with a $330 target.
Malik also emphasized Apple’s flexibility in adjusting pricing throughout its product portfolio and modifying bill of materials specifications to counter cost pressures. Apple has 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 support factors. An anticipated Siri enhancement utilizing Google’s Gemini technology is scheduled for later this year. Apple’s active device ecosystem encompasses approximately 2.5 billion units.
