For the first time in ten years, Apple has identified "price increases" as a potential strategy to manage cost pressures in its quarterly financial filings. Based on this, Morgan Stanley anticipates that the entire iPhone 18 lineup, expected to launch in September, could see price hikes of over $100 for equivalent configurations. This move is seen as a measure to offset the sharp rise in costs for NAND flash memory and DRAM.

This marks the first instance in a decade that Apple has openly acknowledged product pricing as a tool for profit management in its disclosures, a shift with significant implications.

The wording in the latest 10-Q quarterly report has changed. Apple mentioned that "industry-wide supply constraints, along with rising costs for components such as advanced semiconductors, storage (NAND), and memory (DRAM)" are contributing to volatility in net sales and gross margins.

While this statement itself is not entirely surprising, the notable change is that Apple explicitly listed "product pricing and product pricing actions" as one of the methods to counter these pressures within the same document.

Morgan Stanley analyst Erik Woodring pointed out that historically, Apple's discussions on pricing have been limited to competitive dynamics, with price increases traditionally considered a last resort during inflationary periods. Morgan Stanley believes this change in language strengthens the possibility that Apple will act on raising prices.

Of course, this does not guarantee a price increase is certain. The 10-Q filing also does not specify whether "product" refers only to hardware or includes services like iCloud. Similarly, Morgan Stanley clarified that they do not interpret this wording as a guarantee of a price hike with the September iPhone launch.

The cost of not raising prices presents a real dilemma. Morgan Stanley's cost analysis suggests that if Apple chooses to avoid price increases, the higher costs for memory components will fully impact the profit and loss statement by fiscal year 2027, once previously acquired lower-cost inventory is depleted. This scenario poses a substantial downside risk to the company's earnings.

Apple's new CEO, John Ternus, is navigating his first year in the role. Morgan Stanley considers it highly unlikely that he would willingly accept a potential decline in profitability at this juncture. According to the firm, the primary goal of a price increase would not be to rigidly defend the gross margin percentage, but rather to protect the absolute dollar amount of gross profit generated by the product line.

Based on the assumption of a price increase exceeding $100 across the iPhone 18 lineup—an assumption already incorporated into their model—Morgan Stanley forecasts iPhone shipments for FY27 to remain largely flat, with a projected 1% year-over-year increase. However, they expect that the combination of higher prices for equivalent configurations and an upmarket shift in the product mix, potentially driven by a foldable iPhone, will push the iPhone's Average Selling Price (ASP) up by more than 10% year-over-year. This is projected to drive a 14% increase in iPhone revenue and support full-year earnings per share reaching $10.23.

Morgan Stanley maintains an "Overweight" rating on Apple stock with a price target of $330. This target is based on an enterprise value to sales multiple of 8.3 times for FY27, implying a price-to-earnings ratio of approximately 32 times.

Apple's stock closed at $271.35 on April 30th, giving the company a market capitalization of approximately $4 trillion.