BofA Securities analyst Wamsi Mohan upgraded Apple Inc (NASDAQ: AAPL) from Neutral to Buy and raised the price target from $208 to $225.
The re-rating reflected a more robust multi-year iPhone upgrade cycle driven by the need for the latest hardware to enable Generative AI features likely for introduction in 2024 and 2025 (a large part of the installed base is still on iPhone 11).
The analyst noted higher service growth as Apple better monetized its installed base, adding that the silicon roadmap will morph from PC to Servers to Autonomous, driving higher margins.
Mohan also flagged strong capital returns (buybacks, dividends) even after approaching net cash neutral.
He emphasized that the gross margin is stable to higher over time (mix, price, vertical integration).
According to Mohan, the iPhone maker remained underweighted vs. the S&P500, and anticipation of AI features could induce institutional investors to increase positions.
He also noted that the risk around legal issues is manageable, and the recent relative underperformance suggested many risks baked into expectations.
The analyst said that investor-focus shifted to the expected launch of Vision Pro in February 2024 and AI-enabled iPhones in 2024 and 2025.
Mohan raised his iPhone unit estimates for FY24, FY25 and FY26 from 231 million, 244 million, and 230 million to 233 million, 250 million, and 250 million, respectively.
His Services estimates changed for FY25 and FY25 from $95 billion and $107 billion to $97 billion and 110 billion, respectively.
Mohan's EPS estimates for FY25 and FY26 are now higher than the Street by 7% and 4%, respectively. In Services, the analyst noted traction with a broader installed base with several categories, including advertising and health and fitness.
The analyst's checks suggested higher iPhone production in December and potentially lower in March, but no aggregate material order changes. China's weakness is primarily offset by strength in other countries, he points out.
Mohan expected Apple to introduce AI-driven features in iOS18 with monetization through better iPhone hardware and AI-enabled third-party apps. Vision Pro could surpass iPad revenue as spatial computing takes hold, offering differentiated use cases that drive Services upside down.
Price Action: AAPL shares traded higher by 2.43% at $187.07 on the last check Thursday.