By Christine Ji
Morgan Stanley is betting that strong iPhone demand will allow Apple to raise prices and still grow sales and earnings
Morgan Stanley estimates that the iPhone 18 lineup could see a $200 price increase from the previous generation.
As consumers brace for higher electronics prices, Apple's pricing power is putting the company on track for an earnings boost amid a global memory crunch.
In a Tuesday note titled &#34;Higher Prices Begets Higher Earnings,&#34; Morgan Stanley analyst Erik Woodring wrote that revenue upside is in store for Apple (AAPL) as it raises prices across its product lines to protect margins from increasing component costs. According to Morgan Stanley, this pricing strategy could drive a 2% to 4% upside to the company's third-quarter earnings per share, and about a 1% lift to its full-year fiscal 2027 earnings.
Woodring maintained his overweight rating and $360 price target on the stock, which implies roughly 15% upside from current levels.
Apple products are highly inelastic, meaning that consumer demand is not very sensitive to changes in price. &#34;We estimate historical elasticity of iPhone is 0.2 to 0.5 - making it Apple's most inelastic product - while Mac/iPad elasticity is 0.8 to 1.0,&#34; Woodring wrote. That means a 10% increase in iPhone prices would only result in a 2% to 5% drop in unit shipments.
While prices haven't been confirmed for the upcoming iPhone 18 lineup, Woodring believes a $200 price hike across all models is increasingly likely.
The artificial-intelligence boom has led to memory shortages and skyrocketing prices. Morgan Stanley estimates that average DRAM costs for Apple will rise around 370% between fiscal 2025 and 2027, while NAND costs will increase 280% over the same time period.
In June, Apple raised prices on its MacBooks and iPads after CEO Tim Cook said that price increases had become &#34;unavoidable.&#34;
&#34;Notably, despite these pricing actions, we have not observed any meaningful changes in Mac or iPad lead times,&#34; Woodring wrote. &#34;If these relationships remain intact, higher pricing should be a net positive for revenue [and] revenue growth.&#34;
Apple's strong reputation makes it unique among electronics makers. Analysts have previously speculated that the company is better positioned than competitors to gain market share, as it can more easily pass on rising costs to loyal consumers.
Price increases are &#34;unlikely to materially disrupt demand, especially considering supply challenges at peers,&#34; Woodring wrote. &#34;Rising component costs are mitigated given Apple's bargaining power against consumers and the supply chain.&#34;
If memory costs remain elevated, Apple may be forced to raise prices again in fiscal 2028, Woodring added, although he flagged that it's difficult to speculate about future pricing strategy.
Thus far, shares of Apple have outperformed in 2026 in the face of supply-chain constraints. They've risen 16% year-to-date, making Apple the best-performing &#34;Magnificent Seven&#34; name. The company has taken more dramatic steps to advance its AI strategy this year, such as unveiling a new AI-powered Siri during its Worldwide Developers Conference last month.
An agentic Siri will pave the way for a long-term &#34;AI-driven replacement cycle,&#34; while new products such as a foldable iPhone will strengthen iPhone demand through 2028, Woodring noted.
-Christine Ji
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(END) Dow Jones Newswires
07-14-26 1549ET

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Morgan Stanley analyst Erik Woodring predicts Apple can raise iPhone prices by $200 due to inelastic demand, boosting Q3 EPS by 2-4% and FY2027 earnings by 1%. This strategy offsets surging memory costs driven by AI. Woodring maintains an overweight rating with a $360 price target, citing Apple's pricing power and strong brand loyalty as key factors protecting margins amid supply chain constraints.

- Morgan Stanley anticipates that strong iPhone demand will enable Apple to raise prices, potentially increasing third-quarter earnings by 2% to 4%.  
- The analyst estimates a $200 price hike could accompany the iPhone 18 lineup, despite rising component costs, with Apple's pricing strategy likely protecting margins.  
- Even amidst a global memory crunch, Apple's robust brand allows it to pass costs onto consumers without significantly affecting demand, suggesting a positive long-term financial outlook.

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The next boost to Apple's stock could come from an iPhone price hike