Apple's Multi-Year iPhone Upgrade Cycle and AI Features To Drive Upside, Analysts Say

Goldman Sachs analyst Rod Hall maintained Apple Inc AAPL with a Buy and raised the price target from $265 to $275.

The analyst said Apple should be on the cusp of a multi-year replacement cycle for the iPhone after the iPhone maker delivered a solid third-quarter iPhone-driven EPS beat with continued services momentum.

The analyst noted that iPhone revenue of $39.3 billion beat the consensus of $38.6 billion, growing ~2% ex-forex (-1% year-on-year). Apple ended the quarter with channel inventory at the low end of its target range for iPhone and iPad, Hall highlighted.

Also, iPad and Mac revenue beat consensus revenue, reflecting new product launch benefits, with the latest iPads and Mac in the quarter all capable of supporting Apple Intelligence.

Hall highlighted Apple’s fourth-quarter revenue guidance for 5% Y/Y, including service revenue growth of 13% Y/Y, which implies 2% Y/Y product revenue growth.

Apple’s reminders about tough comparisons on Mac (Y/Y comps), Wearables (Y/Y comps), and iPad (Q/Q comps) imply that iPhone revenue should grow Y/Y in the fourth quarter, indicating strong demand, as per the analyst.

He said that Apple’s fourth-quarter gross margin guidance of 45.5%-46.5% (versus consensus of 45.7%) would mark a fourth-quarter record, even at the low end.

The fourth-quarter gross margin outlook supports the analyst’s view that iPhone revenue in the September quarter should be substantial given that the iPhone has the highest margins in the products portfolio, providing mix benefits and that the recent services gross margin expansion to the mid-70% range is durable.

Hall projected fourth-quarter revenue and EPS of $94.54 billion and $1.60.

KeyBanc analyst Brandon Nispel reiterated a Sector Weight rating on Apple.

The re-rating reflected the third-quarter results that came in better than expectations, but guidance aligned with expectations.

Nispel said Apple outperformed expectations across all product categories, ex Mac, and beat on services.

While the guide is cryptic, he noted it implies iPhone +~3% Y/Y.

Based on his conversations with carriers, Nispel remained skeptical of a significant acceleration in the upgrade cycle and noted a much more gradual replacement rate than the bulls.

Nispel’s model continues to call for less growth than consensus, and he continues to see upgrade rate pressures and China competition, which limits his enthusiasm for Apple.

Nispel projected fourth-quarter revenue and EPS of $94.10 billion and $1.58.

Piper Sandler analyst Matt Farrell reiterated a Neutral rating on Apple with a $225 price target.

Apple delivered June quarter results slightly ahead of expectations, mainly due to strong growth in iPad and services, Farrell noted.

The analyst flagged that iPhone revenue was down 1% Y/Y in the June quarter despite the install base hitting new all-time highs.

In addition, Greater China’s revenue showed further improvement in the June quarter. Farrell said investors remain laser-focused on the second half of the iPhone ramp.

Still, based on the September quarter commentary, the analyst’s iPhone revenue estimates remain unchanged for the back half of the calendar year. Management is very excited about the Apple Intelligence opportunity.

However, it will roll out in stages across the globe, and Farrell is still cautious about the consumer entering the second half. The analyst continues to view shares as appropriately valued ahead of the upcoming iPhone 16 launch.

Farrell projected fourth-quarter revenue and EPS of $94.07 billion and $1.58.

BofA Securities analyst Wamsi Mohan maintained a Buy rating on Apple with a price target of $256.

The re-rating reflected the expected strong iPhone upgrade cycle in fiscal years 2025 and 2026, higher growth in services revenue, higher margins from more internally developed silicon, continuing capital returns, and AI features that can drive higher institutional ownership.

According to Mohan, results from Apple indicate improving trends across the portfolio where growth accelerated in iPhone, iPad, and wearables and across regions.

As per the analyst, implied revenue guidance of $94 billion will be conservative, especially around services and iPhones. Mohan noted the potential for significant acceleration of units in the December quarter and overall in fiscal 2025 with the rollout of Apple Intelligence.

Mohan said there is potential for consensus estimates to be revised higher given the multi-year iPhone upgrade cycle, tailwinds to gross margins, and strong cash flows.

Mohan projected fourth-quarter revenue and EPS of $94.75 billion and $1.61.

Price Action: AAPL is up 3.08% at $225.08 at the last check on Friday.

Image via Shutterstock