Memory prices soar 400%, triggering gross profit alarms; Apple's Q1 financial report faces a major cost test.

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Apple Inc.'s stock price is facing its toughest test since the start of 2024, as soaring memory chip prices are eroding its profit margins. The iPhone maker will release its financial report after the U.S. stock market closes on Thursday, and investors will look to it for the real impact of cost pressures.

Since hitting a high on December 2, Apple’s stock price has fallen by more than 10%, making it the worst-performing company among the “Mag7” tech stocks and the biggest drag on the S&P 500 index in the same period. The stock has declined for eight consecutive weeks, marking its longest losing streak since 1993.

This round of sell-off is at least partly due to market concerns over soaring memory chip costs. As a key component for smartphones and tablets, surging memory prices are expected to suppress Apple’s profit margins and earnings. This issue has overshadowed positive news about its AI plans and is expected to become more prominent after supply contracts expire in the second half of 2026.

Since the end of September, the spot price index for dynamic random-access memory (DRAM) chips has surged nearly 400%, reflecting a surge in demand driven by AI data center construction. On Tuesday, Apple supplier Qorvo Inc.’s performance outlook was well below expectations, and in a conference call mentioned that “memory pricing and supply constraints are impacting customers’ production plans.”

Cost Pressures Surpass Historical Levels

“We’ve seen Apple face pressure from memory prices before, but never at such an unprecedented pace,” said Shaon Baqui, senior technology research analyst at Janus Henderson and a major holder of Apple stock. “The market is clearly uncertain and concerned that we may see more bad news regarding memory.”

According to technology research firm IDC, memory accounts for 10% to 20% of the manufacturing cost of smartphones. IDC calls the rise in memory prices a “crisis” for hardware companies. Memory prices are expected to remain high for the foreseeable future.

Apple’s scale means it has significant bargaining power with suppliers and some ability to pass higher costs on to consumers, especially as demand for high-end models remains strong. However, steep memory prices leave it with limited options. “Apple can alleviate some of the pressure, but its levers are limited,” Baqui said. “Pulling the pricing lever could trigger demand destruction. Clarifying the impact on margins will be crucial.”

Wall Street Remains Cautious

Currently, Wall Street is taking a wait-and-see approach. According to Bloomberg data, consensus forecasts for Apple’s net profit in 2026 have barely changed in the past month, as have forecasts for revenue and gross margin. If these assumptions decline due to memory costs, it means that despite the stock already trading at a premium compared to major indices and its own history, the real valuation is even more expensive.

The memory issue comes at a time when investor sentiment toward this tech giant is complex. The company’s last financial report offered optimistic guidance, but sales in the Chinese market unexpectedly fell. However, after reaching a multi-year agreement with Google, a subsidiary of Alphabet Inc., for the latter to support Apple’s AI technologies (including Siri), Wall Street’s view of its AI position turned positive. This news is seen as validating Apple’s strategy of not investing in AI as aggressively as other giants.

“I like Apple’s approach to spending,” said David Wagner, portfolio manager at Aptus Capital Advisors and a holder of Apple stock. “Everyone is focused on its position in AI, but this shows it hasn’t fallen behind.”

Valuation Premium Coexists with Slowing Growth

Apple’s stock currently trades at about 30 times expected earnings, above its 10-year average of 22 times, and also higher than the Nasdaq 100 index and the “Mag7” average multiple.

Apple’s fiscal 2026 (ending September) revenue is expected to grow by 8.7%, which would be the fastest growth since 2021, but is expected to slow each year for the next three fiscal years. According to Bloomberg Industry Research, the overall technology sector is expected to grow revenue by about 19% in 2026, and the technology hardware and equipment sub-sector is expected to grow by 11%.

Nevertheless, even with the company’s high stock valuation and relatively modest growth, many investors still view the stock as a relative safe haven among tech stocks. Its healthy balance sheet, lasting profitability, and strong cash flow make it a stable core holding in portfolios.

“The valuation multiple is clearly high, but compared to the other ‘Mag7’, Apple looks like a very resilient company,” said Baqui of Janus Henderson. “It has a massive user base and recurring revenue from services, all of which support free cash flow. I don’t know if we’ll see a growth inflection point very soon, but during volatile times, it’s still like a warm blanket.”

Risk Disclaimer and Limitation of LiabilityThe market has risks, investment needs caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article fit their particular situation. Investment based on this is at your own risk.

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