Apple Stock Has Moved Up 4.2% Since iPhone 16 Launched, Analyst Says It Has Another 8% Upside As Manufacturing Cost Decline Bolsters Cupertino's Margins

Apple Inc.’s AAPL manufacturing costs for its latest iPhone lineup show promising trends for margins, according to a new Bank of America analysis.

The teardown study reveals significant cost reductions in Pro models while highlighting the company’s strategic pricing approach across its product range.

The Apple Analyst: Bank of America analyst Wamsi Mohan maintains a “Buy” rating on Apple with a price target of $256, implying an upside of nearly 8% from Wednesday’s closing price.

The Apple Thesis: BofA’s teardown analysis reveals significant manufacturing cost improvements for iPhone 16 Pro models, while base models see increased costs.

The analyst highlights that the iPhone 16 Pro Max’s manufacturing costs are 5% lower than its predecessor, contributing approximately 320 basis points to gross margins. When adjusting for memory costs, the year-over-year savings increase to 8%.

“At Apple’s scale, these add up to meaningful savings of $3.7bn for 250mn iPhones that can be a tailwind of >100 bps of product GMs when fully ramped,” noted the analysis.

Key Findings:

Main electronic assemblies make up 50% of iPhone 16 Pro Max manufacturing costs, up from 47% in the iPhone 15 Pro Max.

Base iPhone 16 shows a 10% increase in manufacturing costs compared to iPhone 15, primarily due to AI processing and camera improvements. When adjusted for memory costs, this increase narrows to 6%.

Potential savings of at least $10 per iPhone from insourcing the baseband modem from Qualcomm Inc. QCOM.

Vertical integration efforts could drive further margin improvements. The company spends approximately $250 on integrated circuits per iPhone 16 Pro Max, creating opportunities for cost savings through component insourcing.

Why It Matters: The findings support BofA’s broader thesis on Apple’s margin resilience. The bank expects strong iPhone upgrade cycles in fiscal 2025 and 2026, driven by hardware requirements for generative AI features.

Apple’s gross margins have been trending higher in the last several years, supported by both services mix and iPhone margin stability despite increased functionality.

Trading at $237.87, Apple shares have gained nearly 30% over the past year. Apple is set to announce its first-quarter 2025 earnings on Jan. 30. In October last year, the company reported fiscal fourth-quarter revenue of $94.9 billion, surpassing analysts’ expectations of $94.56 billion.

Price Action: Apple’s stock gained 1.97% on Wednesday, closing at $237.87. In after-hours trading, it edged up another 0.31%, reaching $238.60, according to Benzinga Pro data.

Apple’s consensus price target stands at $245.17, based on evaluations from 30 analysts, with Wedbush setting the highest target of $325 on Dec. 26. The latest ratings from MoffettNathanson, Bernstein, and BofA Securities point to an average target of $234.67, implying a potential downside of 1.65%.