BofA Securities analyst Wamsi Mohan maintained a Buy rating on Apple Inc (NASDAQ: AAPL) with a price target of $256.
The rerating reflects the expected strong iPhone upgrade cycle in fiscal 2025 and 2026, driven by the need for the latest hardware to enable Gen AI features, higher growth in Services revenue, higher margins from more internally developed silicon, continuing capital returns, and AI features that can drive higher institutional ownership.
The price target is based on approximately 30 times Mohan's calendar 2026 EPS of $8.47.
The target multiple compares to the 5-year historical range of 16-34 times (median 27 times). He noted that a multiple at the higher end of the historical range is justified given a multi-year upgrade cycle, large cash balance, and opportunity to diversify into new end markets and increase the mix and diversity of services.
The analyst cited SensorTower data, App Store revenues in the first quarter (after 33 days) rose to $2.9 billion (up 14.5% Y/Y), with total iPhone + iPad downloads up 7.6% to 3.1 billion during the same period.
October alone saw global App Store revenue growth of 15.1%, with a 6.7% rise in China. Average revenue per download grew by 6.4% year-over-year, supporting the "Buy" rating. Mohan anticipates a multi-year iPhone upgrade cycle, expanding gross margins, and steady cash flows.
In App Store categories, entertainment revenue grew by 37% year-over-year, marking it as the second-largest and one of the fastest-growing categories. Gaming revenue reached $1.4 billion, making up 47% of total App Store revenue compared to 53% the previous year, reflecting diversification as non-gaming apps increase monetization. Notably, categories such as Entertainment (16%), Photo & Video (7%), Social Networking (4%), and Productivity (3%) continue to grow, suggesting a broadening of revenue sources beyond gaming.
Mohan also noted the minimal impact of the EU Digital Markets Act (DMA) on Apple's App Store downloads.
Although Google Chrome downloads in the EU rose by 123% year-over-year, totaling 15 million, this is a small portion of Apple's EU device base. Overall, App Store downloads in the EU grew by 9%, while revenue increased by 28% year-over-year, indicating that consumer behavior remains steady post-DMA compliance.
For Apple's total services revenue in the first fiscal quarter, Mohan anticipates 13% year-over-year growth, maintaining this outlook into the second quarter, highlighting the enduring strength of Apple's Services segment as a positive long-term sign.
Price Action: AAPL stock is down 0.64% at $221.49 at last check Monday.