The AI Boom Is Coming for Apple’s Profit Margins
Parts for iPhones to cost more owing to surging demand from AI companies.
4 min
Apple has dominated the electronics supply chain for years. No more.
Artificial-intelligence companies are writing huge checks for chips, memory, specialised glass fibre and more, and they have begun to out-duel Apple in the race to secure components.
Suppliers accustomed to catering to Apple’s every whim are gaining the leverage to demand that the iPhone maker pay more.
Apple’s normally generous profit margins will face pressure this year, analysts say, and consumers could eventually feel the hit.
Chief Executive Tim Cook mentioned the problem in a Thursday earnings call, saying Apple was seeing constraints in its chip supplies and that memory prices were increasing significantly.
Those comments appeared to weigh on Apple shares, which traded flat despite blowout iPhone sales and record company profit.
“Apple is getting squeezed for sure,” said Sravan Kundojjala, who analyses the industry for research firm SemiAnalysis.
AI chip leader Nvidia recently became the largest customer of Taiwan Semiconductor Manufacturing , or TSMC, Nvidia Chief Executive Jensen Huang said on a podcast.
Apple had been TSMC’s biggest customer by a wide margin for years. TSMC is the world’s leading manufacturer of advanced chips for AI servers, smartphones and other computing devices.
Spokesmen for Apple and TSMC declined to comment.
The big computers that handle AI tasks don’t look like the smartphones consumers own, but many companies supply components for both. In particular, memory chips are in short supply as companies such as OpenAI, Alphabet’s Google, Meta , Microsoft and others collectively spend hundreds of billions of dollars to build AI computing capacity.
“The rate of increase in the price of memory is unprecedented,” said Mike Howard , an analyst for research firm TechInsights.
That applies both to the flash memory chips that store photos and videos, called NAND, as well as the memory used to run apps quickly, called DRAM.
By the end of this year, the price of DRAM will quadruple from 2023 levels, and NAND will more than triple, estimates TechInsights.
Howard estimates that Apple could pay $57 more for the two types of memory that go into the base-model iPhone 18 due this fall compared with the base model iPhone 17 currently on sale. For a device that retails for $799, that would be a big hit to profit margins.
Apple’s purchasing power and expertise in designing advanced electronics long made it an unrivaled Goliath among the Asian companies that make most of the iPhone’s parts and assemble the device.
Apple spends billions of dollars a year on NAND, for instance, according to people familiar with the figures, likely making it the single biggest buyer globally. Suppliers flocked to win Apple’s business, hoping to leverage its know-how and prestige to attract other customers.
These days, however, “the companies now pushing the boundaries of human‑scale engineering are the ones like Nvidia,” said Ming-chi Kuo, an analyst with TF International Securities.
Demand for AI hardware is poised to keep growing rapidly. Apple’s spending growth is modest in comparison with what is being spent to fill up AI data centers, even though it is breaking records with huge sales of the iPhone 17.
Samsung Electronics and SK Hynix are raising the price of a type of DRAM chip for Apple, according to people familiar with Apple’s supply chain.
Big AI companies pay generously and are willing to lock in supply and make upfront payments, giving the South Korean chip makers leverage against the iPhone maker.
Apple signs long-term contracts for memory, but it has used its heft to squeeze suppliers.
Its contracts have empowered it to negotiate prices as often as weekly, and to even refuse to buy any memory from a supplier if Apple didn’t view the price as favorable, according to people familiar with its memory purchases.
To boost leverage with suppliers, Apple even began stocking more inventory of memory. That was atypical for Cook, who normally cuts inventory to the bone to maximize Apple’s cash flow.
Apple is fighting not only for current deliveries but also for the attention of engineers at suppliers.
Glass scientists who worked on developing the smoothest and lightest smartphone displays are now also spending time on specialised glass for packaging advanced AI processing chips, according to industry executives.
Makers of sensors and other gizmos inside the iPhone are winning new business from AI companies such as OpenAI that are developing their own hardware.
Still, suppliers said they were far from giving up on business with Apple. Working with Apple is a form of education, they said, because it remains one of the most demanding and disciplined customers in the industry.
TSMC, the Taiwanese chip manufacturer, has built successive generations of its most advanced chips with Apple as its lead customer, relying on the big predictable demand for iPhones.
Now that TSMC is doing more business with Nvidia and other AI companies, people with knowledge of the chip supply chain said Apple was exploring whether some lower-end processors could be made by someone other than TSMC.
One of Apple’s biggest profit-spinners is selling extra memory for far more than the memory chips cost the company.
Last fall Apple discontinued the iPhone Pro model with 128 gigabytes of storage.
Customers who want that model must now start at 256 gigabytes and pay $100 more—the type of move that could be repeated this year to help Apple offset higher costs, wrote Craig Moffett, an analyst at Moffett Nathanson, in an investor note.
However, Apple isn’t expected to raise the price of its next iPhone models over similarly equipped iPhone 17s, said Kuo, the analyst.
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Investors are bracing for a bumpier fall stock market due to shifting odds of a Federal Reserve interest-rate increase and other macro challenges.
3 min
The stock market had a decent summer. Investors are bracing for a bumpier fall.
In the past couple of months, equity investors cheered soaring profits at big companies, shrugged off jitters in the bond market and nudged megacap tech shares back near records.
Now, as the post-Labor Day stretch begins, a number of new challenges lie ahead: ever-shifting odds of an interest-rate increase from the Federal Reserve. Sky-high expectations after a stunning earnings season. The persistent threat of higher consumer prices as fighting in the Middle East drags on.
“You’re moving from this earnings-driven market to this macro-driven market with the Fed, inflation and interest rates in focus,” said Keith Lerner, chief investment adviser for Truist Advisory Services. “It tends to be a choppier period.”
Historically, every major U.S. stock index experiences its worst average return in September. The Dow Jones Industrial Average has slid an average 1.1% in the ninth month of the year, in data that dates back to the 19th century. The S&P 500 has seen the same average decline—and for every September dating back to 1928, the benchmark ends the month lower more than half of the time.
Analysts caution against reading too much into those seasonal patterns. But in recent weeks, new reasons for investor caution have emerged. One of the largest: the looming threat of an interest-rate increase from the Fed, which announces its next policy decision on Sept. 16.
Chairman Kevin Warsh’s decision to ditch forward guidance and take more of his cues from markets has muddied the waters for investors when it comes to monetary policy. That has left traders scouring Fed governor speeches and economic-data reports for clues on the central bank’s next move.
“There’s going to be a lot of eyes on those numbers,” said John Luke Tyner, head of fixed income and portfolio manager at Aptus Capital Advisors.
The past couple of weeks offered just one example of how frequently those expectations can change. After Warsh struck a hawkish tone during remarks on Aug. 28, the odds of a hike at the Fed’s next meeting jumped from 35% before the speech to 58%, according to CME FedWatch data.
On Thursday, Fed governor Christopher Waller made a case for leaving rates where they are. Interest-rate futures showed coin-flip odds between a hike and a hold. Then Friday’s robust jobs report amped up rate-hike bets once more, back to a roughly 60% chance of higher rates after the meeting.
“Rates have really been driving the car for equities the last few weeks,” said Ross Mayfield, an investment strategist at Baird.
That uncertainty comes as an unruly bond market could put pressure on stocks. Treasury yields have marched higher for much of the summer, driven by concerns about rising oil prices, growing U.S. budget deficits and a deluge of tech-company bonds now competing for investors’ cash. Last week, the rout went global, pushing yields to multiyear highs in Japan, Germany and the U.K.
Higher bond yields can drag on stock prices and lift borrowing costs for companies and consumers across the economy.
Rising prices remain the top concern for bond traders, and continued fighting between the U.S. and Iran has done little to ease those worries. The national average price of diesel climbed to a record of $5.850 on Friday, according to AAA. That is up from $3.712 a year ago.
Investors will get more insight on the path of prices this week, with the much-awaited consumer-price index report due Friday and a reading on producer prices Thursday.
With another blockbuster earnings season in the books, some analysts have also warned that any boost from the third-quarter reports due in the coming months could be minimal. Back-to-back quarters of standout profits have raised expectations and made it especially difficult to impress traders. Custom-chip company Broadcom, for example, said Wednesday that it more than tripled its earnings and nearly doubled its revenue. Shares slipped 2.7% the next session.
Many analysts note there are plenty of reasons not to panic. The economy is in impressive shape, thanks to a healthy labor market and the rippling effects of the artificial-intelligence investment boom. Profits are booming at America’s biggest companies. The Cboe Volatility Index has dropped to its lowest levels of 2026. Credit spreads are tight, a sign bond investors aren’t concerned about economic conditions that could hurt companies.
But the mood has shifted from the euphoria that felt tangible when the Nasdaq was notching back-to-back records early this summer. The question, Mayfield said, is whether the fundamentals that have bolstered the bull market so far can stretch the rally into 2027.
“There are more anxieties or uncertainties about the backdrop,” he said. “It does feel like a transitional moment.”
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