Memory Costs Threaten Apple's Margins

Apple's stock price has been a shining star in recent times, but beneath its impressive performance lies a potential threat to its margins. The company's June quarter revenue reached a record high across all geographic segments it reports, and its stock has outperformed the S&P 500 over the past year.

The risk to Apple's stock is not a decline in demand, which is actually on the rise with iPhone sales up 22% and Mac sales up 29%. Instead, the concern lies with rising memory costs, which have already begun to eat into the company's margins. In the June quarter, gross margin was 50.1%, but when tariffs are excluded, it drops to 48.1%, with memory cost being the main culprit.

The problem is compounded by Apple's dependence on a limited number of suppliers in the DRAM market, leaving it vulnerable to price fluctuations. The company has already raised prices on iPad and Mac models to cover the increasing costs, but this may not be enough to offset the impact of rising memory prices.