Can Apple Stock's Premium Survive The Memory Squeeze On Its Margin?

Apple is selling iPhones and Macs faster than it can manufacture them, but the margin on those sales is a growing concern. Gross margin, which is the profit after deducting the cost of goods sold, fell in the June quarter and is forecast to decline again for the September quarter. Management attributes this to the rising cost of memory chips used in their devices.

Despite iPhone revenue increasing 22% and Mac revenue rising 29% year-over-year, the company is facing a bottleneck at the advanced node fabrication facilities. Apple's reported gross margin was 50.1% in the June quarter, but without tariff refunds, it dropped 120 basis points from 49.3% in the March quarter and is expected to fall another 160 basis points by the midpoint of the September quarter.

This has raised concerns about Apple's premium valuation, which sits near the top of its 10-year range at 37.1 times earnings. While there is still significant demand for Apple's products, the company's reliance on a limited number of memory suppliers and the potential for further price increases could impact its profitability. Investors should weigh the risks of concentration and price increases against Apple's strong demand, which is still outrunning supply.