Apple's iPhone Dependence Remains, But Services, Wearables Offer Growth Potential: Analyst

Needham analyst Laura Martin reiterated Apple Inc AAPL with a Buy and a $260 price target.

Martin hosted a panel of well-known experts on Apple during the Needham Growth Conference.

Panelists curate some of the largest blogs, podcasts, and websites dedicated to Apple alone.

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In one case, 50% of the investors who pay for his blog own a single stock, Apple.

Martin summarized her top 10 takeaways from the Apple panel.

The Apple experts expressed optimism about Vision Pro as an entry point into spatial computing. However, they mentioned concerns regarding its clunky design, slow product iteration, high price point, and lack of a straightforward “killer app” software.

Although the Apple experts recognized the company’s lag in AI investments compared to Alphabet Inc GOOG GOOGL and Amazon.Com Inc AMZN, they noted that Apple’s strength lies in integrating Generative AI tools and features into its ecosystem instead of pursuing “headline-grabbing” projects.

The Apple experts debated whether, post-Steve Jobs, the company has only succeeded with sustaining innovations (improving existing products) instead of creating entirely new markets, as Jobs did with the iPod and iPhone. They noted that new products like the Vision Pro have not been successful with consumers.

Apple’s 30% App Store commission is very controversial. While critics view it as monopolistic, these experts noted that Apple has begun adjusting its policies (like reducing fees for certain smaller developers to 15%).

While the iPhone remains Apple’s anchor product, the company is diversifying its offerings into services, wearables, and Vision Pro, which they argue adds diversification and growth opportunities away from the iPhone.

Martin noted that Apple is a single-product company with add-on products that generate revenue from existing iPhone users.

If the iPhone falls behind, none of the other products can stand alone. Hence, Apple is not a diversified portfolio company.

Although Apple’s market share is substantial in the US (>50%), it is smaller in regions like Asia (12%) and Africa (6%).

They argued that growing Apple’s market share in these markets offers revenue growth upside.

Martin noted that U.S. ARPUs are typically 2-4 times higher than offshore revenue and users, so Apple must add 2-4 times more users offshore to equal one user in the U.S. economically.

The rollout of domestically produced chips (like Taiwan Semiconductor Manufacturing Co’s TSM American-made A-series) highlights Apple’s effort to localize and de-risk its supply chain amid geopolitical and macroeconomic uncertainties.

They noted that if Apple is successful at diversifying its manufacturing dependence away from China, this would lower its risk and add to its valuation multiple.

Services continue to grow at double-digit rates, driven by Apple’s ability to upsell services like iCloud and Apple Music to its iPhone user base. This recurring revenue model complements hardware sales at higher margins.

These Apple experts cited key risks as concerns over global economic downturns, tariffs, and regulatory pressures from regions like the EU and China. These could negatively affect Apple’s profitability and operational efficiency in 2025.

These experts noted that no stock is more likely to be an investor’s ONLY stock. A significant portion of their subscribers allocate their entire portfolios to Apple, a single company. This indicates extreme loyalty and confidence in Apple’s long-term value generation by these investors.

Price Action: AAPL stock is down 3.7% at $221.36 at last check Tuesday.

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