Apple (AAPL) shares came under pressure today after the company delivered better-than-expected quarterly earnings and revenue but issued gross margin guidance that fell short of Street estimates.
While the market fixates on the margin outlook, Bank of America analyst Wamsi Mohan believes investors may be overlooking a more compelling long-term story.
In a CNBC interview, Mohan acknowledged the release contained a “near-term challenge” tied to rising memory costs – but he maintained that AAPL’s pricing power, supply strategy, and massive installed base could ultimately strengthen the company’s earnings trajectory over time.
Despite the post-earnings decline, Apple stock is up over 20% versus the start of this year.
The near-term challenge for Apple stock
Mohan did not shy away from the immediate issue weighing on investor sentiment.
According to him, rapidly rising memory costs are beginning to erode Apple’s gross margins – a development he compared to the way higher fuel prices can weigh on transportation companies and airlines.
While he noted that softer guidance wasn’t entirely unexpected, the BofA analyst said the direction of margins is clearly becoming more challenging.
He pointed out that the bank had anticipated gross margin guidance roughly 100 basis points below consensus, suggesting the pressure had already been visible to those monitoring component costs.
Apple Inc. still has several offsets working in its favour, though – including tariff-related benefits, inventory advantages, and ongoing efforts to reduce expenses elsewhere in its supply chain.
Nevertheless, Mohan acknowledged that “the trajectory here definitely is more cautious.”
He also highlighted that AAPL shares historically follow 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 for AAPL shares
Despite the short-term concerns, Wamsi Mohan sees a much brighter picture when viewed through a longer investment horizon.
His central argument rests on Apple’s ability to raise prices without severely damaging demand.
The analyst noted that 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 price adjustments. Even so, he’s convinced that 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 Inc 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.
The BofA analyst therefore characterizes the current environment as a classic case of near-term pain potentially setting the stage for stronger long-term economics that benefit Apple shares.
How to play Apple Inc after earnings?
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.
Large tech firms are signing long-duration agreements with memory suppliers, intensifying competition for capacity.
In response, the giant 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 inventory 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 behemoth 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 AAPL stock’s most important long-term opportunity: converting temporary cost pressures into future profit growth.
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