The AI-driven iPhone upgrade cycle will be huge. Two more Wall Street firms agree
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A pair of upbeat research notes are helping push Apple to a fresh record Monday and instilling further confidence that the iPhone maker’s AI-fueled stock gains are far from over. Analysts at Morgan Stanley designated Apple their top pick, raised their price target to $273 a share and reiterated their buy-equivalent rating. Meanwhile, Loop Capital upgraded shares to buy from hold and hiked their price target to $300 from $170. The common theme in the notes is optimism on Apple’s artificial intelligence strategy, which the Club has routinely praised since the iPhone maker unveiled details more than a month ago. Morgan Stanley made the case for a record device upgrade cycle ahead, while Loop Capital contended Apple is well-positioned to be the platform of choice for consumers using generative AI. Shares of Apple jumped more than 1.5% on Monday, on pace for a record close above $234 each. The stock is up about 19% since the June 7 close, the session before Apple Intelligence was announced, compared with a roughly 5% gain for the S & P 500 over the same stretch. The notes from Morgan Stanley and Loop Capital — while not delivering a major update to our investment thesis — offer up more evidence that Apple is on the verge of what may well be the largest upgrade cycle in the company’s history. Indeed, our belief in an impending AI-driven boost to iPhone sales is why we urged investors to stay patient with Apple during a multi-month sell-off to start the year. Our longtime mantra on the stock bears repeating: Investors should own Apple, not trade it in an attempt to catch every little swing in the stock, to ensure they capture the real, long-term potential upside. Apple Intelligence — the company’s suite of generative AI tools set to be available in the U.S. this fall — represents “a clear catalyst to boost iPhone and iPad shipments,” Morgan Stanley wrote in a note to clients dated Sunday. However, analysts said they previously underestimated just how material the upgrade cycle can be. They now project Apple will ship nearly 500 million iPhones in fiscal 2025 and 2026 combined, which would be 6% above the previous record upgrade cycle in 2021 and 2022. As a result, the analysts believe Apple can earn $8.70 per share in 2026. Apple is expected to earn $6.62 a share in fiscal 2024, which ends in September, according to estimates compiled by FactSet. Anything less than an iPhone 15 Pro won’t be able to take advantage of the new Apple Intelligence features, which is the major reason so many, including us at the Club, believe this will be such a significant replacement period. In recent years, an improved camera was seemingly the main reason to upgrade but the reality is, most folks won’t even see the difference from one generation camera to the next. Apple Intelligence, however, represents an entirely new technology with the potential change how we all interact with our devices. That is a change large enough to incentivize even those who usually hold on to their devices as long as possible to upgrade a bit sooner than they otherwise would have. And notably, replacement cycles are at an all-time high of 4.8 years, Morgan Stanley estimated. What’s more, we haven’t even seen what other improvements the iPhone 16 will have. While those those details should come in September, we assume there will be camera enhancements, too. So, the reason to upgrade is going to be Apple Intelligence, a better camera, plus whatever other incremental upgrades we learn about later this year. In upgrading Apple on Monday, Loop Capital leaned on the work of its supply chain analyst who is seeing “material iPhone build and demand increases.” Big picture, the supply chain analysis “suggests that [Apple] has an opportunity the next few years to solidify itself as consumer’s Gen AI ‘base camp’ of choice, just as it did for social media 15 years ago (with iPhone) and digital content consumption 20 years ago (with iPod),” Loop Capital wrote to clients. Both Loop and Morgan Stanley said the AI-driven replacement cycle will lead to an increase in the average selling price of iPhones. Loop also said Apple Intelligence will benefit other important revenue streams, including its high-margin Services segment, as well as sales of other devices such as Mac computers, iPads and even the Vision Pro. While we agree AI will do more than just boost iPhone sales , we’ve tempered our general outlook on the Vision Pro until its price comes down and its design becomes more accessible. We still believe the Vision Pro and devices like it may well be the next major computing platform, but it just isn’t as material in the near term. Right now, it’s all about the iPhone. Fortunately, there’s a whole lot to like. (Jim Cramer’s Charitable Trust is long AAPL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
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A pair of upbeat research notes are helping push Apple to a fresh record Monday and instilling further confidence that the iPhone maker’s AI-fueled stock gains are far from over.
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