Tim Cook recently said price increases were “unavoidable” and described the company’s pricing as “unsustainable.” The 16-inch MacBook Pro saw its price go up by $300. The 11-inch iPad Air went from $599 to $749. Even the HomePod Mini got a $30 bump to $129. Cook squarely placed the blame at the feet of the AI industry, which is not surprising. RAMageddon has already come for your desktop PCs and gaming consoles. The Xbox has seen its price climb nearly 25 percent depending on the model, and Nothing even canceled an entire phone launch. Apple is just the most recent to jack up prices and point the finger at AI.
The price hikes are “basic economics,” says Tim Derdenger, associate professor of marketing and strategy at Carnegie Mellon University’s Tepper School of Business. As the tech industry has raced to win the AI war, “the price of RAM has skyrocketed because the memory manufacturers have reallocated their production lines to produce new HBM memory for AI data centers and away from consumer DDR5.” And when the cost of components goes up, companies tend to pass those costs on to consumers.
But this isn’t some fluke, or temporary supply chain problem. Companies are choosing data center clients over ordinary buyers because “the same chip earns far more inside an AI server than inside a consumer device,” according to Srikanth Jagabathula, professor of technology, operations, and statistics at the NYU Stern School of Business. Regardless of whether people are clamoring for more AI, and more AI data centers, or not.
Companies like OpenAI, Google, and Microsoft have thrown around unprecedented amounts of money, outbidding companies like Apple for RAM and storage, creating what even Sam Altman has admitted is a bubble. This imbalance has led to record earnings for companies like Micron, which manufactures memory chips. “This shortage is not temporary and might extend into the next few years … And because the increase is lasting rather than temporary, simply absorbing the cost is not a sustainable strategy,” Jagabathula says.
But Apple has posted record earnings for at least four quarters in a row, and its margins on hardware sales are much higher than the industry standard. Its markups are estimated to be between 30 and 40 percent, depending on the product. TechInsights and The Wall Street Journal estimate that it’s even higher on the iPhone 17 Pro, perhaps as much as 47 percent. According to TheStreet, margins on smartphones are typically between 15 and 25 percent. Data on laptop margins is harder to come by, but estimates put it between 10 percent and 25 percent for most of the industry.
Apple is actually among the last of the major tech companies to raise its prices. But why are customers being asked to foot the bill when Apple seems well-positioned to absorb these costs?
Ari Lightman, professor of digital media and marketing at Carnegie Mellon University’s Heinz College, described it as “spot on” to say it’s hard to square Apple’s public financial statements and Tim Cook’s description of its pricing as unsustainable. He said raising prices was “without a doubt” about appeasing shareholders who demand constant growth.
Lightman points to Apple’s lagging behind in the AI race, the uncertainty around installing a new CEO in John Ternus, and the lack of a hit new product category as putting pressure on the company.
“There’s a lot of things that investors can really beat them up on,” he said, and “if they’re going to be selling the stock and promoting the stock to large institutional investors … in terms of being one of the most valuable companies, then they have to tell a really good story.” And that story is one of huge margins and profits even in the face of rising costs and AI-driven supply constraints.
The AI boom is touching almost every facet of our lives, but this week, it came particularly hard for our wallets with the announcement of another round of price hikes for the Xbox, and even the Arduino got caught up in the memory crunch. I spent hours talking to marketing and business experts, exchanging emails and phone calls, and no one could give me a satisfying answer to why the price of popping up more data centers should be consumers’ costs to bear.