Apple's New iPhones Disappoint Analysts, But Margin Woes May Be Temporary
Apple's recent iPhone event marked its CEO John Ternus's first major launch as head of the company. Following the debut of the new iPhone 18 Pro and Pro Max, along with Apple's first foldable iPhone Duo, Bank of America analyst Wamsi Mohan reiterated his buy rating for Apple stock but reduced his price target to $370 from $380.
Mohan cited the lower-than-expected pricing of the iPhone 18 Pro and Pro Max as a key factor in his decision. The new devices start at $1,199 and $1,299 respectively, which is $100 more than their predecessors but below Mohan's estimated price increase for each device.
Apple is facing rising memory costs due to increased demand from data centers. To offset these higher costs, the company has raised its Mac prices earlier this year and now the new iPhone 18 Pro and Pro Max prices reflect Apple's attempts to absorb some of the costs. However, this will likely weigh on Apple's margins, which are expected to be between 47% to 48% in the fourth quarter, down from 50% in the third quarter.
Despite the temporary hit to margins, Wamsi Mohan remains bullish on Apple stock, citing its strong product lineup and cash reserves of over $39 billion for new product development and acquisitions. Gene Munster, founder of Deepwater Asset Management, believes that up to one-third of Pro Max owners will switch to the iPhone Duo, which could eventually help increase iPhone margins.