Transcription
Wamsi Mohan. He is senior I.T. hardware analyst at Bank of America Securities.
Wamsi, what are your channel checks showing you just in terms of demand for this phone?
Good morning, Becky. Thanks for having me. Yeah, absolutely. We track lead times and ship times as they are available across different carriers, as well as Apple's own distribution channels globally. And what we see is that, indeed, the Pro and Pro Max have similar lead times to prior years, whereas the baseline Pro model is really extended, and that extension is particularly prominent in China. Now, that could be happening partly because the iPhone Air is not available in China because of eSIM reasons. And so the baseline model has incremental demand in China. So also there is the element of subsidy that in China, the iPhone base model will qualify for that. Some versions of it will qualify for that as well. So we think that the demand is quite strong, not just for the base model, but actually for all models across the board. We think the supply of the iPhone Air is quite high, which is part of the reason why the ship times have that are not extended. But in general, this cycle is actually turning out to be somewhat better than what most people expected going in into this iPhone 17 cycle. As such.
You are a hardware analyst, and I know watching demand for the phones is an important part of Apple's share price, but it feels like it's less and less of an important part of what makes up the share price these days. There's so many questions about AI, so many thoughts on the Apple. You know, Apple economy and the Apple sphere. Once you're in it, it's hard to get out of it. So how do you really make your determinations for where you think Apple shares are headed?
Yeah, that's a great question. Look, I think that Apple as a company, the story has really morphed from one of being a boom bust hardware cycle to one of sustained earnings growth over time. And where does that really come from? It comes from a few core capabilities that Apple has, including vertical integration, where they've always been really good at developing their own silicon as well as their software. Now, on top of that, when you look at the install base of Apple built on these great devices, that foundation of over 2 billion devices in aggregate, right globally, when you take in all the different products and then run services on top of that, which are extremely high margin, you set up the stage for Apple to be one of those companies which, at a $400 billion revenue scale, is still improving gross margins. We actually think in the near term, gross margins are headed higher, not just because of mix and vertical integration, but also because of FX tailwinds. And so when you think about all of those and the services mix improving, of course you can get Apple to be a company that's going to be scaling margins north of 50% gross margins. And if you go back ten years when Apple's multiple was maybe in the low teens, the gross margins for the company were 35%, and people were worried that they were going to compress to 30. Instead, they've gone to 45. And now we think that they're headed to 50. So this is just an amazing company which has built this platform that is extremely robust in the age of AI, which is part of your question, Becky. I think it's important to recognize that AI at the edge will be dominated first by smartphones. Apple will be a key player of AI at the edge. And in our opinion, actually, this unlocks $1 trillion TAM on top of what Apple currently has. And that is going to be a meaningful, meaningful driver for this stock over time. So as we look at the earnings power, we think that, you know, $850 or so for next year, going to $930 or so the following year. And if things go right on AI for Apple, it could easily exceed $300 and much higher than that over time.
Your price target right now is $270. What is that time frame or are you changing that to over $300 now?
No, our our price target is $270. Over the next 12 months, as we look out further and as you get into next year, the earnings power of this is going to catalyze from $850 and grow to more in the $930 or so range, which is where we're published. So we think that there is upside as we go over the next 12 months, as peop