Apple shares traded lower after the company reported quarterly earnings and revenue above Wall Street expectations but guided for gross margins below consensus estimates. The market's focus landed squarely on the margin outlook, yet Bank of America analyst Wamsi Mohan contends that investors may be missing a more significant long-term narrative.
Speaking on CNBC, Mohan described the guidance as a "near-term challenge" driven by climbing memory costs, but argued that Apple's pricing power, supply chain strategy, and enormous installed base could ultimately strengthen its earnings trajectory. Despite the post-earnings pullback, the stock remains up more than 20% since the start of the year.
The near-term pressure on margins
Mohan did not downplay the immediate issue. Rapidly rising memory costs are beginning to erode Apple's gross margins, a dynamic he likened to how higher fuel prices weigh on transportation companies and airlines. While softer guidance was not entirely unexpected, he noted that the direction of margins is becoming more challenging.
Bank of America had anticipated gross margin guidance roughly 100 basis points below consensus, suggesting the pressure was already visible to those tracking component costs. Apple does have offsets working in its favor, including tariff-related benefits, inventory advantages, and ongoing efforts to reduce expenses elsewhere in its supply chain. Even so, Mohan acknowledged that "the trajectory here definitely is more cautious," and he highlighted that Apple shares historically track growth in gross profit dollars, making a slowdown in margin expansion a notable concern for investors focused on the next several quarters.
The long-term opportunity
Viewed through a longer investment horizon, Mohan sees a much brighter picture. His central argument rests on Apple's ability to raise prices without severely damaging demand. Earlier expectations had called for significantly larger price increases, with some market participants anticipating roughly $200 of additional pricing on devices. Instead, the iPhone maker implemented more moderate adjustments.
Even so, Mohan is convinced those hikes could have a lasting impact on profitability. "Every person in the install base who owns an iPhone is now going to probably pay $100 more for the remainder of their upgrade cycles," he told CNBC. That dynamic, in his view, creates a strong earnings lever once memory costs normalize. In practical terms, Apple could be enduring a temporary squeeze today while simultaneously laying the foundation for higher future profits. As component inflation eventually eases, the company would still retain the benefit of the higher pricing structure across millions of customers.
Supply strategy and inventory build
Another pillar of Mohan's bullish outlook centers on Apple's evolving approach to securing critical components. He argued that the memory market has changed dramatically as cash-rich hyperscalers increasingly compete for the same supply needed by consumer electronics manufacturers. According to the Bank of America expert, Apple is no longer automatically the dominant buyer in every negotiation, as large tech firms sign long-duration agreements with memory suppliers, intensifying competition for capacity.
In response, Apple has reportedly adopted a similar strategy, entering contracts that can extend one to three years or longer to ensure supply availability. Mohan defended Apple's inventory build, noting that although inventory has risen sharply on a year-over-year basis, the absolute scale remains modest relative to its massive production footprint. More importantly, he views the increase as a strategic decision designed to reduce supply risk rather than a sign of weakening demand.
"Supply is hard to come by," Mohan said, adding that Apple is positioning itself to avoid shortages that could disrupt product launches and sales. The larger question, he suggested, is not whether the company can obtain memory, but whether consumers continue upgrading devices at higher prices. For now, Mohan sees that uncertainty as manageable, leaving him focused on what he views as Apple's most important long-term opportunity: converting temporary cost pressures into future profit growth.
This article is for informational purposes only and does not constitute financial advice.
