Apple could significantly minimize tariff headwind, says Morgan Stanley

Since U.S. tariffs on Chinese imports were first introduced, the consensus expectation has been that Apple (AAPL) will be forced to raise iPhone prices to offset the consistently increasing cost of tariffs, notes Morgan Stanley analyst Erik Woodring, who adds that the firm has already expressed concerns about the impact that higher prices could have on iPhone volumes. When considering how Apple mitigates 125% China tariffs, “a new line of thinking has emerged that doesn’t involve like-for-like iPhone price increases,” says the analyst, who thinks the company may be able to lean on fast-ramping India production and targeted iPhone mix shift to “significantly minimize the tariff headwind.” If the firm assumes India can meet at least 60% of U.S. iPhone demand in 2026 and China ships just the highest-end, highest-storage SKU iPhones, the firm sees $7B-$8B of tariff costs still hitting the model. If it assumes Apple also pressures suppliers to share in the $7B-$8B of tariff costs 50/50, then tax affected, that cost would equate to about a 30c EPS headwind, or just 3.5% of the calendar year 2026 Street EPS estimate, notes the analyst, who keeps an Overweight rating and $220 price target on Apple shares.