The era of price increases has arrived; Morgan Stanley: Apple iPhone 18 Pro series may be raised by $200.

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Apple is extending its price increase strategy from non-iPhone products to core hardware, and Morgan Stanley believes that this will not significantly suppress demand, but could instead become a driver for profit growth in the next few fiscal years.

Morgan Stanley released a research report on July 14, stating that based on historical demand elasticity analysis, supply chain tracking, and material cost calculations, Apple’s core hardware products overall show low sensitivity to price increases. Recent price hikes are not expected to have a substantial impact on sales, but are likely to alleviate cost pressures and improve profitability.

Notably, Morgan Stanley has further raised its expectation for the price increase of the next-generation flagship models. The report believes that compared to the previously assumed $100, a $200 increase in the starting price of the iPhone 18 Pro series is now seen as the more likely base case. If this materializes, combined with an increased share of high-end products, Apple’s earnings per share in the third quarter of fiscal year 2026 (September quarter) may rise by 2% to 4% from the current forecast, while full-year EPS for fiscal 2027 could increase by about 1%.

iPhone Demand Least Sensitive to Price Increases

After reviewing Apple’s major hardware price adjustments together with its quantitative team, Morgan Stanley found significant differences in price sensitivity across product lines. Among them, the price elasticity of demand for iPhone is about 0.2 to 0.4, the lowest among Apple’s primary hardware products; Mac is about 0.8; iPad is about 1.0, close to unit elasticity.

The lower the elasticity coefficient, the more limited the impact of price increases on sales. Morgan Stanley believes that the iPhone is closer to a “necessity” in consumers’ daily lives, so price increases have a relatively limited effect on purchase intent, whereas Macs and iPads are seen more as discretionary consumption items.

However, the report also points out that since Apple has hardly raised the price of the same-generation iPhone in the past five years, the historical sample is relatively limited, so there is still some error in the elasticity estimation, though the overall trend is highly indicative.

Supply chain data also confirms this. As of July 9, the delivery times for Mac and iPad have remained basically unchanged after price increases, and the iPhone production schedule has also remained stable in recent weeks, indicating that neither consumer demand nor Apple’s production pace has been significantly affected by the price hikes thus far.

Non-iPhone Products Were the First to See Price Increases, Primarily to Maintain Gross Margins

On June 25, Apple first raised the prices of Macs, iPads, and some accessories, with overall increases ranging from 14% to 54%.

Specifically, the starting price for the MacBook Air increased from $1,099 to $1,299; the iPad (2025 model) from $349 to $449; the Mac Studio (M4 Max version) from $1,999 to $2,499; and Apple TV rose by as much as 54%. In this round of price adjustments, prices for the iPhone, Apple Watch, and AirPods remained unchanged.

Morgan Stanley believes the main purpose of this round of price hikes was not to boost profitability, but to address rapidly rising memory costs. According to its model, Apple’s unit purchase cost for DRAM in fiscal 2027 is expected to rise about 190% year-on-year, and NAND costs are expected to rise about 180%.

For instance, in the case of the iPad (2025, 128GB), the $100 price increase corresponds to about 40% incremental gross margin, higher than the long-term gross margin level of around 25% for this product line; the $200 price increase for the MacBook Air (M4, 256GB) corresponds to about 27% incremental gross margin, which is basically in line with Mac’s historical profitability.

The report points out that Apple had previously purchased some memory inventory in advance, so the rise in costs affects the profit statement with some lag. If memory prices remain high or continue to increase, Apple may still need to further adjust prices in fiscal 2028, but for now, the next price round is unlikely to come soon.

A $200 Price Increase for iPhone 18 Pro Becomes More Likely

Regarding iPhone pricing, which the market watches most closely, Morgan Stanley believes that if Apple wants to maintain around a 40% hardware gross margin, a $200 starting price increase for the iPhone 18 Pro (256GB) has become a more realistic choice.

According to calculations, the per-unit memory cost for the iPhone 18 Pro will rise by about $140 to $160 in fiscal 2027. Even with a $200 price increase, the corresponding incremental gross margin of about 30% is still lower than the approximately 41% average level over the past three years, indicating that cost pressures remain.

However, Morgan Stanley believes that three factors are expected to partially offset these pressures.

First, the iPhone 18 standard version, iPhone Air 2, and iPhone 18e are expected to launch in the spring of 2027, thus the sales mix for the September quarter following the autumn 2026 launch will tilt further towards high-end models. Second, the foldable iPhone is expected to begin shipping in the fourth quarter of 2026, with an expected gross margin higher than that of traditional iPhone products. In addition, Apple is expected to also increase the prices for lower-end iPhones in spring 2027, which will further improve overall product mix profitability.

Taking all these factors into account, Morgan Stanley expects Apple to maintain a basically stable overall iPhone gross margin in fiscal 2027.

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