Surge in memory prices impacts Apple Inc.'s profits, its financial report will become an industry "stress test" indicator.

Apple Inc. (AAPL.US) stock price continues to be under pressure, as investors are trying to assess the extent to which the rapid rise in memory chip prices is eroding its profits. The iPhone maker will announce its earnings report after the market closes on Thursday, providing key clues for the market. Since reaching a high on December 2nd last year, Apple Inc. stock has fallen by more than 10%, making it the worst performer among the "big seven tech" during the same period and the largest drag on the S&P 500 index. The stock has fallen for eight consecutive weeks, with the last longer decline dating back to 1993. The recent sell-off is partly due to market concerns that the soaring costs of memory chips, which are key components in smartphones and tablets, will squeeze Apple Inc.'s profit margins and earnings. This issue has overshadowed the positive news from its artificial intelligence plans and is expected to become more prominent by the second half of 2026 when supply contracts expire. Strong demand is expected to keep memory prices high in the foreseeable future. "We've seen Apple Inc. face memory price pressures before, but never at such an unprecedented pace," said Shaon Baqui, a senior analyst at Janus Henderson who holds a large stake in Apple Inc. shares. "The market is clearly uncertain and concerned, and we expect to see more bad news on the memory front." Since the end of September last year, the spot price index for dynamic random access memory (DRAM) chips has risen by nearly 400%, reflecting the surge in demand brought about by the construction of more artificial intelligence data centers. On Tuesday, Apple Inc. supplier Qorvo Inc. gave a performance outlook well below expectations, mentioning on their earnings call "some pricing and supply constraints for memory affecting customer production plans". Apple Inc.'s size means that it has strong bargaining power with suppliers and some ability to pass on cost increases to consumers, especially given the robust demand for high-end models. However, the steep rise in memory prices presents it with a difficult choice. According to IDC data, memory accounts for 10% to 20% of the manufacturing costs of smartphones, and the company describes the rise in memory prices as a "crisis" for hardware companies. "Apple Inc. can mitigate some of the impact, but its available means are limited," Baqui noted. "Raising prices could dampen demand. Understanding the impact on profit margins is crucial." Currently, Wall Street is taking a wait-and-see approach. Over the past month, market expectations for Apple Inc.'s net profit for the 2026 fiscal year have hardly changed, and expectations for revenue and gross margin have remained stable. If these assumptions are revised downward due to memory costs, it would mean that despite Apple Inc.'s stock valuation being higher than major indices and its historical levels, its actual valuation may be even higher than it appears. At a time when the memory issue is surfacing, investors have mixed feelings about this tech giant. Apple Inc.'s previous earnings report provided optimistic forecasts, despite being overshadowed by unexpected decline in sales in the Chinese market. However, with Apple Inc.'s long-term agreement with Alphabet Inc.'s Alphabet Inc. Class C, which provides support for Apple Inc.'s AI technology including Siri, Wall Street's outlook on its AI strategy is turning positive. This news is seen as validation of Apple Inc.'s strategy of not being as aggressively invested in AI construction as other tech giants. "I like how Apple Inc. is handling its expenses," said David Wagner, portfolio manager at investment firm Aptus Capital Advisors who holds Apple Inc. stock. "Everyone was previously focused on its AI positioning, but this shows that it is not falling behind." Apple Inc.'s stock is currently trading at around 30 times expected earnings, higher than its 10-year average of 22 times, as well as higher than the average valuation multiples of the Nasdaq 100 index and "big seven tech" companies. Revenue for Apple Inc.'s 2026 fiscal year (ending in September this year) is expected to grow by 8.7%, the fastest pace since 2021, but is expected to slow down year by year over the next three fiscal years. Market research estimates that revenue for the entire tech industry in 2026 is expected to grow by about 19%, with the tech hardware and equipment subsector expected to grow by 11%. Despite the high valuation and relatively moderate growth, many investors still see Apple Inc.'s stock as a relatively safe haven in the tech sector. Its healthy balance sheet, stable profits, and strong cash flow make it a stable holding in investment portfolios. "Clearly, the valuation is high, but compared to other companies in the 'big seven', Apple Inc.'s business looks very resilient," said Baqui of Janus Henderson. "It has a massive user base and recurring income from services, which provides stability for its free cash flow. I don't think its growth will see a dramatic turnaround soon, but in times of volatility, it still feels like a warm blanket." The world's largest tech company shows no signs of slowing down its AI spending, a record-breaking wave that is driving the performance of hardware suppliers such as Samsung Electronics and SK Hynix. Despite doubts about whether the continued demand for artificial intelligence is enough to support such massive capital investment.