Wall Street Analysts Warm Up To Apple Ahead of iPhone 15 Launch

Wall Street analysts have been warming upto Apple (NYSE: AAPL) ahead of the upcoming iPhone 15 launch in September. The stock has also risen from its August lows amid the optimism and is now getting near its all-time highs.

Global smartphone sales have been tepid and Apple is no exception. In its fiscal third quarter of 2023, Apple said that iPhone sales totaled $39.67 billion which was 2% lower YoY. The metric fell short of the $39.91 billion that analysts expected and despite better-than-expected Services revenues and an overall earnings beat, Apple stock fell after the earnings release.

Wall Street warms upto Apple

Amit Daryani of Evercore ISI believes that Apple stock tends to do better when investors are concerned about the macro environment and added that the stock historically performs well ahead of the iPhone launch. Citi analyst Atif Malik who raised AAPL’s target price to $240 and opened a 90-day catalyst watch on the stock earlier this month also stressed that since 2016, the stock has outperformed the S&P 500 between the release date of fiscal third quarter earnings and the official iPhone announcement in September.

Karen Firestone, the co-founder of Aureus Asset Management believes that Apple stock is reflective of the market mood and investors waiting on the sidelines. She said that the momentum for the new iPhone 15 is strong and the company would come up with “numbers that will make people comfortable this quarter.

AAPL is the least-owned Big Tech company by institutions

Firestone said that “almost no one is overweight Apple” – a view echoed by Morgan Stanley – which said in a client note that AAPL is the least-owned Big Tech company by institutions.

In his note, Morgan Stanley analyst Eric Woodring said, “Apple’s active institutional portfolio weighting in 2Q decreased 26 bps Q/Q to 5.51%. … However, Apple’s S&P 500 weighting increased 65 bps Q/Q to 7.72%, resulting in the spread between Apple’s S&P 500 weighting and active ownership increasing by 91 bps Q/Q, to 2.21%.”

Woodring added, “This is important as 1) 2Q marked the largest one quarter increase in Apple under-ownership in the history of our data, 2) today Apple is more under-owned than at any point since 2008, and 3) Apple has now surpassed MSFT as the most under-owned large cap tech stock.”

While he admitted to valuation concerns, Woodring added, “While we know that Mac and iPad demand remains challenged, we are encouraged by the fact that September quarter growth is coming in the right places, with the iPhone inflecting to Y/Y growth, Services reaccelerating to low double digit growth in F4Q23/FY24, and gross margin tailwinds still underappreciated by investors.”

Apple is focusing on India to revive its growth

The US is the biggest market for Apple iPhones followed by China, Japan, and the UK. According to Counterpoint Research, Apple had a 5.1% market share of the Indian smartphone market in the second quarter– which is the second largest in the world after China.

However, budget handsets dominate the Indian market with Samsung being the market leader. The bulk of the market is however with Chinese companies despite the ongoing troubles between the two neighbors who share a long and disputed border.

The spike in Apple’s India sales comes after the country opened its first two retail stores in the country – in Delhi and Mumbai respectively.

Apple has been focusing on India at a time when the Chinese economy is slowing down – and the growing US-China tensions are only hastening the iPhone maker’s pivot to other emerging countries.

Foxconn is reportedly producing the iPhone 15 in India

Apple supplier Foxconn has reportedly started producing the upcoming iPhone 15 in India. Separately, Foxconn is also looking to produce AirPods at its plant at Hyderabad in India. Foxconn has been ramping up its investment in India as Apple seeks to increase sourcing from the country while lowering its reliance on China.

The Indian government said earlier this year that Apple would produce a quarter of iPhones in the country. While that number looks farfetched, at least for now, analysts believe that Apple might source between 10%-15% of iPhones from India.

Apple launched new products at WWDC

Apple has also been to diversify its revenue base and announced its new AR headset Vision Pro at this year’s WWDC which it would launch early next year at a price of $3,499. The company’s CEO Tim Cook said, “It’s the first Apple product you look through, and not at.”

The product would compete against the Meta Quest headset even as like other Apple products the Vision Pro is priced above the competing set of products.

As expected, Apple announced the iOS 17 at the event and revealed some of the changes that would come to the next iPhone scheduled to be launched later this year.

The previous versions auto-corrected smear words when typing on the iPhone keyboard. The company announced a new autocorrect feature that would make using cuss words easier.

During his keynote address Craig Federighi, Apple’s senior VP of Software Engineering said, “And in those moments where you just want to type a ducking word, well, the keyboard will learn it too.”

The company would also add live transcription to voicemail which Federighi said would help the customer “pick up the call to talk to them right then and there.”

Furthermore, Apple announced that FaceTime is coming to Apple TV as well. It also said that customers would be able to find the lost remote using FindMy if they have the newer Siri remote.

Optimism builds up ahead of the iPhone 15 launch

Meanwhile, optimism is building up ahead of the iPhone 15 event on September 12 and Citi said in its note that “We expect major hardware upgrades to iPhone 15 series include 3nm A17 chips for the Pro models, transition to USB-C port, upgraded camera, and increased memory and storage.”