Apple Stock Can Weather Tariff Storm. Here’s How.

Apple (NASDAQ:AAPL) stock has declined by over 15% in the past two trading days following President Donald Trump’s announcement of a sweeping round of tariffs that would apply to over 100 countries. These tariffs directly impact nations that are crucial to Apple’s supply chain, including China, Vietnam, and India. At first glance, these tariffs deal a major blow to Apple’s U.S. business. The iPhone – America’s favorite gadget – and other Apple devices are built almost entirely overseas, leaving the company highly exposed to cost escalation. As a worst case, we estimate that Apple could see earnings drop by as much as 30%. That said, Apple likely has several strategies to offset the impact of these tariffs, including adjusting pricing, leveraging carrier partnerships, shifting production, and expanding its high-margin services business. Also, see how META could be affected in META Stock To $200? What The Current Market Turmoil Means.

Image by Kiều Trường from Pixabay

A 30% Downside to Earnings?

While the specifics on how these tariffs will be implemented remain unclear, consider this back-of-the-envelope worst-case scenario. Most of the iPhones sold in the USA are manufactured in China, which faces a 54% tariff. A report by Nikkei last year indicated that the iPhone 16 Pro – likely the most popular iPhone model in the U.S. – costs Apple about $568 per unit to manufacture. The device retails for $1,000 in the U.S., translating into an approximate gross margin of 43%. This means that Apple’s costs would rise by over $300 per unit, bringing the landed cost in the U.S. to about $870 per device. This would slash Apple’s gross margin on the device to just about 13%.

Now, the Americas segment – which comprises both Latin America and North America -accounted for about 43% of Apple’s total sales last year. It’s reasonable to estimate that the U.S. alone contributes between 25% and 30% of Apple’s total revenue. Backing out Apple’s services revenue, which is not subject to tariffs, about 20% to 25% of Apple’s total revenue could face substantial margin compression due to these tariffs. Now, considering that Apple’s other operating costs are not going to decline with the falling gross profits, the impact on net profits and EPS could be more significant. A close to 25% to 30% drop in EPS wouldn’t be a stretch. That said, there are several ways that Apple can mitigate the impact of tariffs in the interim.

How Apple Can Mitigate Impact

Raising iPhone Prices: Apple hasn’t increased the base price of its flagship iPhones for over seven years. The iPhone 16 Pro still sells for $1,000, which is essentially the same price as the iPhone X in 2017. Over the same roughly seven-year period, the U.S. consumer price index has gained about 29%. Given the broader trend of inflation, Apple could raise prices by $100 to $200 for the next iPhone generation without significant customer resistance. Since the U.S. price often serves as a global pricing benchmark, Apple could adjust prices internationally as well, helping to better manage its overall margins.

Partnering with Wireless Carriers: Wireless carriers in the U.S. have been aggressively subsidizing iPhones in recent years to attract and retain customers in a saturating mobile market. Given this trend, Apple could share some of the tariff burden with carriers, who might absorb part of the price increase to maintain competitiveness. Recent wireless plan price hikes also give carriers more flexibility to offer better iPhone promotions or financing options.

Increasing iPhone Production in Lower-Tariff Countries: Currently, most iPhones sold in the U.S. are manufactured in China, which faces a stiff 54% tariff. However, Apple has been ramping up iPhone production in India, which faces a much lower 26% tariff. While India accounted for an estimated 14% of global iPhone production last year, some reports have indicated that Apple plans to increase Indian production to 25% by 2025 and potentially to 50% of its overall iPhone output by 2027. Apple could fast-track the shift of more iPhone production to India in the medium term to better manage the impact of tariffs on its bottom line.

Services Can Mitigate Impact: Apple’s services business – which is its highest margin segment – is also its fastest growing. Services grew by a solid 14% over the holiday quarter, compared to the hardware business, which expanded by a mere 1.5%. Services margins stood at a solid 75% over Q1 FY’25 compared to about 39% for the hardware business. This business has been key to improving Apple’s gross margins in recent years. For perspective, gross margins stood at about 46% in Q1 FY’25, up from about 38% in FY’21. As Apple continues to expand its services operations, it could help to partly offset the impact of the pressure on its U.S. hardware business.

Things could remain rough for Apple stock in the near term as more clarity emerges. There’s clearly a lot at stake for Apple.  Given the broader economic uncertainties, ask yourself this question: do you want to hold on to your Apple stock now, or will you panic and sell if it starts dropping further? Holding on to a falling stock is never easy. Trefis works with Empirical Asset Management — a Boston area wealth manager — whose asset allocation strategies yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Empirical has incorporated the Trefis HQ Portfolio in this asset allocation framework to provide clients better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

[1] Returns as of 4/7/2025
[2] Cumulative total returns since the end of 2016

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