They can make money from iCloud, but they can also make money selling a 128GB of the device.
Since they sell a 128GB iPad I don't see why they shouldn't sell an iPhone with a larger storage.
They may keep 4 price tiers, so from 16 to 128GB, but I hope they'll just double the storage space so 32, 64 and 128
Won't happen, from Apple's perspective cutting 32GB is a better option. They will make their money from the cheapt 16GB and the next one up would be 64GB etc.