Apple's next iPhone could carry a heftier price tag, but the company's new leasing initiative may help soften the blow for U.S. consumers and keep upgrade demand intact. Morgan Stanley analyst Erik Woodring estimates that iPhone 18 models could cost up to $200 more, driven by rising memory and storage costs that are squeezing hardware margins. While Apple hasn't confirmed any price increase, its Apple Upgrade program—operated through Klarna—lets eligible customers spread the cost over 12 or 24 months instead of paying upfront.
For investors in Apple (NASDAQ:AAPL), the key question is whether leasing can make a costlier iPhone affordable enough to sustain upgrade cycles, lift average selling prices, and protect profitability. The program doesn't reduce the device's price, but it changes the payment experience, potentially lowering the barrier to entry for consumers who might otherwise balk at a higher sticker price.
Pricing power could turn inflation into profit
The surge in AI data center demand is consuming memory and storage, tightening supply for consumer-electronics makers. Apple has already raised prices on some Macs and iPads, shifting Wall Street's debate from whether iPhone prices will rise to how much. Woodring believes Apple can pass a portion of these costs to customers, and Morgan Stanley expects price increases to add about 1% to fiscal 2027 earnings, assuming unit demand remains resilient. The bank maintains an Overweight rating and a $360 price target.
A $100 or $200 increase could lift Apple's average selling price and offset component inflation without requiring rapid shipment growth. Premium buyers, particularly those choosing Pro models, are less price-sensitive, giving Apple more room to raise prices where margins are strongest. A richer product mix could support earnings even if demand for cheaper models softens.
Leasing makes a costly iPhone easier to swallow
Apple Upgrade allows eligible U.S. customers to lease iPhones through Klarna for 12 or 24 months, with payments starting at $17.99 per month. Customers can return the device, start a new lease, or make a final payment to keep it. Bank of America analyst Wamsi Mohan described the program as "directionally positive," citing lower affordability barriers, faster replacement cycles, stronger direct engagement, and the opportunity to capture value from returned devices. Bank of America retains a Buy rating and a $380 price objective.
This mechanism could prove useful if Apple raises prices. A $200 increase appears significant on a retail label, but less severe when divided across monthly payments. Returned devices could provide refurbished inventory and create more opportunities to sell AppleCare, accessories, and services. For a company that has increasingly leaned on services revenue, this could be a strategic advantage.
Higher prices still carry a difficult demand test
Apple's pricing power is strong, but not unlimited. KeyBanc recently downgraded Apple to Underweight with a $250 target, citing spending data that points to weaker hardware demand and slowing upgrades. The firm warned that higher prices and reduced carrier subsidies could make fiscal 2027 growth harder to achieve. Leasing also has drawbacks: customers don't automatically own the device, AppleCare isn't included in the lowest advertised payment, and damage or early-termination charges can raise the total cost. Consumers who upgrade repeatedly may find themselves in permanent monthly payments without a phone to resell.
Supply remains another risk. Even if customers accept higher prices, shortages of advanced chips and memory could prevent Apple from shipping enough devices to capture the full benefit. This is a familiar theme for Apple investors, as seen in recent supply-driven volatility and memory cost pressures affecting chipmakers.
Despite these challenges, Apple's ability to leverage its ecosystem and services could provide a buffer. The company's AI-light strategy has won over investors, and its upcoming earnings will be closely watched for pricing and demand signals. For now, the leasing program offers a potential path to mitigate the impact of higher prices, but the ultimate test will be whether consumers are willing to pay more for the next iPhone.
This article is for informational purposes only and does not constitute financial advice.
