Bernstein Bullish on Apple: Memory Cost Impact Exaggerated, AI Will Enhance User Stickiness

Investors in Apple stock have recently seemed overly focused on the soaring cost of memory. However, Bernstein analyst Mark Newman believes they are missing the real point and should shift their focus to artificial intelligence (AI).

Based on this assessment, Newman has raised Apple’s price target from $325 to $340.

That said, investors’ concerns about memory costs are not entirely unfounded. In fact, after Apple released another strong quarterly earnings report, CEO Tim Cook specifically addressed the issue of memory costs during the earnings call.

He stated that, from a memory perspective, the impact on the first fiscal quarter would be minimal, meaning the effect on gross margins for the December quarter would be limited. However, he expects a more noticeable impact on gross margins in the second fiscal quarter, which is already reflected in the 48% to 49% guidance.

When pressed on whether memory costs might be used as leverage for a price increase in the iPhone 18, Cook did not respond directly. This cautious attitude suggests that Apple is still weighing its options, and that the cost and pricing structure for the next generation of iPhone products has yet to be finalized.

Well-known Apple analyst Ming-Chi Kuo believes that, at least for now, Apple’s overall strategy is unlikely to change significantly and the company will likely continue its current approach before the launch of the iPhone 18.

Apple’s typical approach is clear: lock in chip supply during market turmoil, absorb costs early, expand market share, and then recoup profits through its services business.

While rising memory costs do create pressure, Newman argues that what will really drive the next stage of Apple’s stock price growth is Apple Intelligence and Siri 2.0, not memory prices themselves. He points out that Apple’s hybrid AI architecture could trigger an important new upgrade cycle, a narrative far more critical than memory inflation.

Wall Street's latest Apple price targets are as follows:

Wedbush: $350 (Outperform)

Goldman Sachs: $330 (Buy)

JPMorgan: $325 (Overweight)

BofA Securities: $325 (Buy)

Morgan Stanley: $315 (Overweight)

Newman said in an interview that while memory cost inflation is a significant issue, it will not fundamentally weaken Apple’s strong profitability. Of course, he also expects iPhone production costs to rise.

He added that rising component costs could lead to iPhone prices increasing by as much as 15%; meanwhile, some consumers may switch to more affordable models, resulting in an overall average selling price increase of about 12%.

The increase in costs is considerable—since the second quarter of 2025, mobile DRAM contract prices have soared by 237%, while NAND prices have risen about 70%.

Even so, Newman believes Apple’s superior execution sets it apart from competitors, relying on scale advantages, bargaining power in the supply chain, product structure, and sustained pricing power to absorb the pressure. Apple has evolved into a platform company with a “closed ecosystem” and high user stickiness, which is especially important during periods of soaring costs.

Bernstein’s model shows that under memory pressure, iPhone’s gross margin may cumulatively decrease by nearly 1.5 percentage points by the fourth quarter of 2027. But Newman believes this impact on earnings per share will be largely offset by higher-margin services income, improved product mix, and proactive cost management.

The Importance of AI Strategy Outweighs Cost Pressures

The core of Newman’s bullish argument for Apple is AI. He believes Apple is not just making AI a chatbot, but embedding AI as a system-level capability into its ecosystem to enhance user stickiness.

The foundation is a hybrid architecture: handle as many requests as possible on-device, while more complex inference tasks are handed over to Google’s Gemini model through “private cloud computing.” This approach ensures privacy while providing advanced features and responsiveness.

Unlike many peers, Apple is not obsessed with winning AI benchmarks or rapidly monetizing AI capabilities; as long as AI features can change user behavior and drive healthier services revenue growth, that is enough.

Early research supports this logic. According to an April 2025 Morgan Stanley survey cited by Investing.com, 51% of iPhone users said they were “extremely likely” to upgrade their phones in the next 12 months. Compared to the previous survey, their willingness to pay $9.11 per month for Apple Intelligence increased by 12%.

Reportedly, Siri 2.0 (the next stage of Apple Intelligence) is expected to launch in the spring of 2026.

Editor: Chen Yujia