TLDR
- Citi has maintained its Buy rating and $315 price target for Apple, despite making minor downward adjustments of $0.06 and $0.04 to its 2026 and 2027 earnings per share (EPS) forecasts.
- Projections indicate DRAM costs will climb by 50% in the second quarter of 2026 and 100% by the second half of the year, creating a challenging environment for all smartphone manufacturers.
- Memory components represent approximately 9% of the total cost for iPhones and 15% for iPads and Macs.
- Citi anticipates a 140 basis-point impact on Apple’s gross margins in 2026, which is expected to moderate to 48 basis points by 2027.
- The recent introduction of the $599 iPhone 17e and the $599 MacBook Neo suggests that Apple is well-positioned to navigate these cost pressures more effectively than its competitors.
Rising memory prices are impacting the smartphone industry. In a note released Sunday, Citi analyst Atif Malik warned of a significant surge in DRAM costs, forecasting increases of 50% in Q2 2026 and 100% in the latter half of that year. While this presents a hurdle for most hardware producers, the situation for Apple is more nuanced.
Apple Inc., AAPL
Reflecting the anticipated margin pressure from higher component expenses, Citi lowered its fiscal 2026 EPS estimate for Apple by $0.06 and its 2027 estimate by $0.04. Nevertheless, the firm upheld its Buy rating and $315 price target.
Apple shares were down approximately 0.7% to $255.81 on Monday morning, extending a year-to-date decline of about 5.3%.
Memory is a significant expense for Apple, accounting for roughly 9% of iPhone production costs and 15% for iPads and Macs, according to Citi. Given the sharp projected rise in DRAM prices, these costs will accumulate rapidly.
However, Malik contends that Apple is better prepared to manage these challenges than its 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.”
Gross Margin Under Pressure
Citi projects that the memory price hike will create a 140 basis-point drag on Apple’s gross margins in 2026, easing to 48 basis points in 2027 as DRAM costs stabilize. The outlook for 2028 remains unchanged.
Smaller competitors with less bargaining power are expected to face greater difficulties, a disparity that could allow Apple to gain market share as rivals struggle with their cost structures.
Citi maintained its projections for iPhone shipments, anticipating 1.3% growth in 2026 to roughly 246 million units and 5.9% growth in 2027 to approximately 262 million units.
New Product Launches Signal Resilience
Last week, Apple surprised the market by releasing two products at lower price points. The iPhone 17e starts at $599, significantly lower than the $799 entry price for the standard iPhone 17, while the $599 MacBook Neo represents a 40% price reduction compared to the $999 MacBook Air.
Evercore ISI analyst Amit Daryanani cited these launches as evidence that Apple is managing inflationary pressures better than investors might realize.
“We think investors are underappreciating how well AAPL is perhaps managing through the memory inflation issue,” Daryanani wrote. Evercore maintains an Outperform rating on the stock with a $330 price target.
Malik also pointed to Apple’s ability to adjust product pricing and modify its bill of materials to mitigate cost headwinds. Apple has already increased prices on certain MacBook models while keeping iPhone pricing stable for specific configurations.
The analyst further noted that Apple’s services division and AI strategy provide additional support, with an upcoming Siri update powered by Google’s Gemini technology expected later this year. Apple’s active installed base currently stands at approximately 2.5 billion devices.
