How the AI Boom Is Squeezing Apple’s Legendary Profit Margins

31 January 2026

Apple, long seen as the master of supply-chain dominance and pristine profit margins, is facing a structural challenge unlike any before it as the global artificial-intelligence boom reshapes where money flows in the technology industry. For years Apple’s negotiating heft allowed it to demand favourable pricing and priority access from suppliers around the world. Those relationships helped the company deliver products like the iPhone with industry-leading profitability. Now, however, that dynamic is shifting as powerful AI companies such as Nvidia, Google and Meta emerge as bigger and more lucrative customers for chips, memory and other essential components. This change, industry analysts say, threatens to squeeze the profit margins Apple has long taken pride in.

On a recent earnings call, Apple’s chief executive acknowledged that parts constraints and rising memory costs are beginning to bite. Suppliers accustomed to catering to Apple’s demands are gaining leverage now that they are courted by AI players willing to pay higher prices and lock in supply with upfront commitments. Memory chips in particular have seen price increases that are unprecedented in recent years, with both NAND flash used for storage and DRAM used for operating system tasks rising sharply as AI infrastructure deployment grows. Analysts estimate that prices for these components could multiply several times compared with figures from just a few years ago, dramatically increasing the cost of building devices such as Apple’s next-generation iPhone.

The shifting balance of power has broad implications. For decades Apple’s massive and predictable purchasing volumes made it the customer suppliers could not afford to lose. It could negotiate aggressive pricing and weekly contract reviews, and it even pressured manufacturers not to sell components to others at higher prices. But with AI infrastructure spending booming, those rules are being rewritten. Nvidia recently surpassed Apple as the lead customer for advanced chips at Taiwan Semiconductor Manufacturing Company, a shift that symbolises the broader transformation of tech supply chains. AI firms’ willingness to pay premium prices and commit large sums for future production has disrupted Apple’s ability to extract favourable terms.

The result is a squeeze on margins that Apple’s executives are keenly aware of. As parts costs rise, Apple faces a choice. It can absorb higher input costs, which would erode the famously generous profit margins that have helped sustain its valuation. Alternatively, it may seek to pass costs on to consumers by adjusting pricing strategies or upselling features like extra memory capacity to offset component shortages. Recent product decisions, such as eliminating lower-storage models that once sold at lower price points, suggest Apple is exploring ways to insulate its bottom line without diminishing demand for its flagship products.

This isn’t just a cost issue but a deeper shift in supply-chain relations and strategic priorities. Suppliers are no longer focused solely on Apple’s schedule but are balancing orders from multiple giant customers competing for finite capacity and expertise. Engineers who once dedicated much of their time to Apple-related innovations are now engaged in developing materials and technologies tailored for AI hardware. That transition pulls talent and attention away from traditional smartphone component development and signals where long-term industry growth is headed.

Apple’s journey illustrates a larger tension in the technology landscape as the AI boom accelerates. Firms that dominate established consumer markets may find themselves challenged by new power centres emerging around AI infrastructure and data-driven services. For Apple, navigating this new environment will require balancing its legacy strengths in design and ecosystem integration with a rapidly changing supply-chain reality. The outcome will influence not only its profit margins but also how the company adapts to the next era of technology competition.