To The Moon

$Apple(AAPL)$  

1. Can strong iPhone 17 demand meaningfully offset margin pressure from higher memory costs?

Yes, under current consensus views it can in the near term, but with nuances.

JPMorgan and other analysts are explicitly betting that robust iPhone 17 demand will power Apple’s fiscal Q1 2026 results and help absorb cost headwinds. The bank raised its price target to USD 315 and maintained an Overweight rating on the back of stronger-than-expected iPhone 17 unit strength and anticipated lower operating expenses than previously guided. These factors, in their view, can help cushion the impact from rising memory costs on gross margins. JPMorgan expects that memory price increases will be limited in their net margin effect because Apple’s scale and long-term supplier agreements provide some insulation. They also project that overall operating expenses for the quarter could come in below guidance, which further supports margin resilience. 

However, broader industry commentary points to a real memory cost challenge that could squeeze iPhone margins if elevated prices persist. Supply constraints driven by strong AI and data centre demand are pushing memory costs higher, and some analysts believe this will have a tangible impact on gross margins unless Apple continues to absorb costs or adjust pricing strategies. Emerging supply reports note that this cost pressure is not a one-off event and may recur in subsequent quarters. 

Summary: In the near term, strong iPhone 17 demand and disciplined cost management can offset margin pressure enough to produce better-than-expected revenue and earnings, especially if operating expenses remain controlled. Over the medium term, sustained memory cost inflation could increasingly test margin stability if Apple cannot pass on costs or increase efficiency further.

2. If Apple beats expectations, is that alone enough to reverse recent underperformance?

A beat could act as a catalyst, but it may not automatically lead to a sustained trend reversal.

A stronger-than-expected earnings print would likely relieve some of the recent valuation pressure and short-term underperformance relative to the broader market (Apple has lagged indices and some peers on a year-to-date basis). Analysts at JPMorgan and others view the current setup — with strong iPhone sales and modest cost pressures — as a constructive backdrop that could restore confidence. A beat could prompt short-term upside and validate the more positive estimates embedded in higher price targets. 

However, several caveats suggest that a single quarter beat may not be sufficient for a durable reversal in trend:

Valuation re-rating will depend on guidance. Investors will closely watch Apple’s outlook for the coming quarters, especially margin guidance amid rising input costs and commentary on component pricing dynamics. Margin guidance that sticks to conservative ranges could temper enthusiasm. 

Memory and cost cycles are ongoing. Persistent memory cost inflation may reintroduce concerns about margin sustainability beyond Q1, making analysts and investors less comfortable extending a rally unless there is clear evidence of structural cost improvements. 

Segment performance divergence matters. Apple’s broader services growth and emerging AI narrative will shape the narrative beyond just hardware sales. A beat driven solely by iPhone units, without strong services commentary, could be interpreted as cyclical rather than a structural inflection. 

Summary: A strong earnings beat this quarter could catalyse a short-term rebound and attract short-covering or tactical buyers. For a sustained trend reversal, Apple would benefit from clear forward guidance that addresses the cost environment, margin outlook, and growth in higher-margin segments (services, AI-enabled features).

Overall Conclusion

Strong iPhone 17 demand is currently central to analysts’ optimism and can help offset margin pressure in the near term, particularly if operating expenses remain below expectations and supplier contracts moderate cost impact. An earnings beat could reverse recent underperformance on a near-term basis, but sustained outperformance will hinge on longer-term cost trends, guidance, and diversification of growth levers beyond hardware sales.