John Ternus's First iPhone Launch Prompted a Bank of America Price Target Cut. Is Apple Stock a Buy?

John Ternus recently hosted his first iPhone event as Apple (NASDAQ: AAPL) CEO, and following the debut of the new iPhone 18 Pro and Pro Max, as well as the company's first foldable iPhone Duo.

Bank of America analyst Wamsi Mohan reiterated his buy rating for Apple stock following the event, but cut his price target to $370, down from $380 previously.

While Mohan is generally bullish on Apple, he said the iPhone 18 Pro and Pro Max weren't priced as high as he expected. That could mean more phones are sold, but at lower margins.

Here's why the new iPhone 18 Pro and Pro Max prices matter for Apple amid rising memory costs, and why Apple stock is still a buy.

Image source: Apple.

The new iPhones could be a hit, but margins will slide

The main reason Mohan lowered Apple's price target came after the new iPhone prices were revealed.

The iPhone 18 Pro starts at $1,199, and the Pro Max starts at $1,299 -- $100 higher than the previous generation -- but below Mohan's estimated price increase for each device.

Apple is dealing with a surge in memory prices, as demand for memory processors for data centers has pushed costs higher. Apple raised its Mac prices earlier this year in response, and the new iPhone 18 Pro and Pro Max prices reflect Apple's attempts to offset the rising prices.

Apple is trying to find the balance between raising device prices and absorbing some of the higher memory costs.

The problem is that absorbing some of the higher costs will weigh on Apple's margins. Management has already said that gross margins for the fourth quarter will be between 47% to 48%, down from 50% in the third quarter.

It's also worth mentioning that there could eventually be some bounce-back for Apple's margins. Gene Munster, founder of Deepwater Asset Management, thinks up to one-third of Pro Max owners will switch to the new iPhone Duo, which starts at $1,999. If that happens, Munster believes the Duo will account for 10% of total iPhone revenue in 2027. At the higher price point, the Duo sales could eventually help Apple's iPhone margins increase.

Now is still a good time to buy Apple

I think Apple is in a unique position right now because it's one of the few major tech companies not ramping up spending on artificial intelligence (AI). That may seem like a drawback at first glance, but so far it's worked out very well for Apple.

While many of its peers are spending to build AI infrastructure -- the costs of which are expected to collectively reach $1.3 trillion next year -- Apple is continually building on the firm foundation of its high-end products.

Sure, rising memory costs are temporarily cutting into margins, but the company can still afford to absorb some of the costs and raise prices, as it weathers this storm.

The point here is that Apple's products are still wildly popular. There are 2.5 billion active Apple devices worldwide, and its latest devices could spur new upgrade cycles for years to come.

Even if the iPhone 18 Pro and Pro Max temporarily have slightly lower margins than their predecessors, sales of the premium Duo could help offset some of that.

What's more, Ternus has a cash pile of more than $39 billion at his disposal for new product and services development and acquisitions. That's more than enough to give him ample room to invest in new growth opportunities for Apple and ride out some of the current memory price storm for a while longer.

Bank of America is an advertising partner of Motley Fool Money. Chris Neiger has positions in Apple. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.