Investing

Could an iPhone Supercycle Drive Apple’s Stock Price to $275 per Share?

Eric Bleeker

Published: May 26, 2024 10:49 am

Last Updated: May 27, 2024 6:27 am

Apple’s (NASDAQ: AAPL) iPhone sales have shown weakness in recent years, leading to speculation about a potential new iPhone supercycle driven by AI features. Is this new supercycle just hopes and dreams or is there legitimacy behind the idea? We analyze the chatter around this new supercycle and describe why Apple is the one massive technology stock that’s been on the wrong side of AI momentum so far.

Is a New iPhone Supercycle Beginning?

You’ll find some notes on this discussion between 24/7 Wall Street analysts Eric Bleeker and Austin Smith below.

• Dan Ives, who is one of the better Apple analysts out there, recently raised his price target on Apple shares to $275.
• “Raising our Apple price target from $250 to $275 to reflect iPhone demand turning the corner into an AI-driven iPhone 16 supercycle on the horizon. AI technology built into the Apple ecosystem adds $30 to $40 per share to the stock in our view. WWDC a key moment ahead for” – Dan Ives
• The important point around AI and Apple is they’re the one tech company that hasn’t benefited from enthusiasm around AI.
• With every other major tech company, AI has fueled returns:
  • Google has seen recent gains as it announced Gemini and laid out its strategy at events like I/O
  • Amazon, Google, and Microsoft have seen cloud segments re-accelerate thanks to AI
  • Facebook has seen gains from its AI investments drive its narrative
  • Even Tesla has seen recent share gains after “pivoting” toward self-driving technology being the key technology it’s pursuing
  • And Microsoft made the contrast with Apple’s approach even more pointed when it announced Copilot PCs that are built around AI features
• But with Apple, AI chatter has largely been negative as they haven’t announced major features or revealed their strategy around how to incorporate new breakthroughs in AI into their products
• But, the company is going to get a chance at WWDC to begin spinning what’s been a negative into a positive
• The original “supercycle” was in 2014, when larger iPhone screens boosted ASPs and between the summer of 2014 and 2015 Apple’s stock jumped 50% thanks to that surge in iPhone sales
• The problem for Apple right now is last quarter’s sales growth was -4% … And sales growth has been negative for 5 out of the last 6 quarters
• Overall, we like this thesis and think Ives is on the right track. While AI features are fundamentally software – which don’t necessarily require a new phone – Apple is great at marketing and getting buzz around iPhones being far more capable will drive customers to upgrade. While Apple being behind on AI has been on anchor on the stock, its opportunity to flip this narrative is a powerful catalyst across the next year.

Transcript

Eric, Apple’s iPhone sales have been somewhat on the ropes the last few years.

We’ve seen some weakness in their shipment volume.

And we used to talk about these Apple iPhone supercycles, these mega upgrade super cycles.

They were largely driven by new features like a larger screen or another breakthrough feature.

Are we teeing up for another iPhone super cycle or not?

I know we saw one notable Apple analyst, Dan Ives, call for Apple soaring to $275 a share on the super cycle.

What do you think?

Give us the context here.

What’s going on?

Yeah.

I mean, I love super cycle.

It just sounds cool, right?

So it’s fun to talk about it again.

You and I, when we were working at the Motley Fool, did plenty of videos back in 2014 about the original super cycle.

It’s fun to think of another one could play out.

So I’ll just read what Dan Ives said himself.

He said, “We are raising our Apple price target from $250 to $275 to reflect iPhone demand, turning the corner into an AI-driven iPhone 16 super cycle on the horizon.

AI technology built into the Apple ecosystem adds $30 to $40 to the stock in our view.”

WWDC, which is Apple’s event that’s upcoming, is a key moment for this.

Now, what I want to highlight is for every single other major tech company, AI has already fueled the returns in the rearview mirror.

You saw Google.

Recently saw big gains after they kind of laid out their strategy.

They’ve had some bumps, but they laid out their strategy.

They released Gemini.

It’s been a big driver to the returns.

You’ve seen also Google, thanks to cloud computing alongside Amazon and Microsoft, have a reacceleration of that business, again, thanks to the growth of AI.

Facebook has been a huge winner in the past year.

That’s thanks to its investments, buying up a ton of GPUs from NVIDIA.

And now those are paying off with gains to its advertising business and also its success building its own model.

So every single technology company has gained from this except for Apple, which hasn’t really had a clearly elucidated AI strategy, but they have their opportunity at WWDC.

Now, when we look at the original iPhone cycle in 2014, back then it was larger screens, mostly boosting the average selling prices.

We saw Apple stock run up 50% across from that summer of 2014 to summer of 2015.

It really did play out.

The problem for Apple, as you alluded to at the beginning, last quarter their sales growth was negative 4%.

That’s not gonna get the job done at the multiples they’re at.

Also, sales growth has been negative for five out of the last six quarters.

I like this thesis.

Well, AI features are fundamentally software, which doesn’t necessarily require a new phone.

Hey, we all know Apple is genius level at marketing, aside from a couple of recent flubs.

Having these AI features is going to be able to get them in the headlines.

It’s going to be able to, for the first time in a while, show something dramatically new when they announce their next iPhone.

And I really do like the potential that this is gonna be the narrative driver that gets consumers back into stores and they flip to revenue growth that’s exceeding Wall Street’s expectations.

Look out, I definitely think you’re looking at the potential upside of 20, 30% across the next 12-plus months being in play.

And that’s an excellent return for a company the size of that.

Yeah, and if you consider the narrative today, as we mentioned, Apple shares have been a little bit on the retreat.

Apple Vision Pro has not been the big unlock or a new product driver that people had expected.

It appears that Apple’s ambitions for new products, whether it’s like the HomePod or the Apple Vision Pro, they’ve had some notable flops.

But if you combine that narrative coming out of the Vision Pro launch with the fact that Apple just announced the largest ever stock buyback plan and the fact that the iPhone is still, today, an absolute cash cow, perhaps the most profitable product on Earth ever made and ever will be.

There is a lot of potential.

You’ve got a lot of negative sentiment and you’ve got a potential blockbuster cash cow product that with one really good core integration of AI could drive a huge demand cycle that we haven’t seen for a decade.

Yeah, and definitely you look at where Apple’s seen good returns recently.

It’s on the back of services.

So it won’t be surprising if, you know, another innovation in software is what really moves the needle forward for Apple.