Apple's iPhone 18 Pro Faces 13-Point Margin Squeeze Risk

Apple Inc.'s (AAPL) iPhone 18 Pro may pose a significant margin risk if it holds the device at its current price of $1,099. According to TechInsights estimates, the bill of materials for the iPhone 18 Pro could increase from $582 to $726, resulting in a gross profit per device of just $373 and a device margin of 33.9%.

This would represent a 13-point device-margin squeeze compared to Apple's baseline iPhone 17 Pro, which has a device margin of 47.0%. However, the trade-off may be worth it for Apple as the company could defend its profit per phone with a price increase and also strengthen its AI capabilities.

Rothschild & Co Redburn analysts are optimistic about Apple's AI progress, arguing that using open models from Nvidia Corporation (NVDA) could improve performance and reduce dependence on Alphabet Inc. (GOOGL) Gemini. Their bull case reaches $400, roughly 30% above recent trading.

While a price increase may weaken demand before the critical iPhone 18 cycle, Apple can recover most of the pressure with a $200 increase or slightly exceed the estimated current device margin with a $300 rise.