We raised our fair value estimate for shares of wide-moat Apple (AAPL) to $185 from $170 after raising our medium-term iPhone revenue forecast. We continue to expect strong revenue growth in fiscal 2025 as users upgrade their iPhones to take advantage of Apple’s generative artificial intelligence features, requiring the latest and greatest hardware.
• Fair Value Estimate: $185
• Morningstar Rating: 2 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium
What We Thought of Apple’s Earnings
We now forecast double-digit iPhone revenue growth in fiscal 2025 and another strong year of revenue growth in fiscal 2026. IPhone revenue remains the primary driver of Apple’s results. We see it as the linchpin to the firm’s walled garden ecosystem of hardware, software, and services, which underpins our wide moat rating and long-term growth thesis. However, we continue to see shares as overvalued. Apple’s current stock price implies closer to 20% iPhone revenue growth in fiscal 2025, which we see as lofty given headwinds to growth in China and slowing consumer phone upgrade cycles.
Apple iPhone 16 Coming in Q3
September-quarter guidance implies roughly 5% year-over-year revenue growth, inclusive of double-digit services revenue growth. To meet this guidance, we expect iPhone revenue to rise in the low-single digits. We expect the release of Apple’s iPhone 16 lineup to occur in September and drive stronger growth in fiscal 2025, which starts in October. In our view, the firm’s suite of generative-AI features, dubbed Apple Intelligence and announced in early June, should drive consumers to upgrade to new models.
Apple Intelligence requires greater memory chip content, currently only available on the iPhone 15 Pro and 15 Pro Max models. We expect sufficient memory content for Apple Intelligence across the iPhone 16 lineup, which should also uplift pricing. Our expectations for greater unit sales and higher pricing drive our optimistic expectations for double-digit iPhone revenue growth in fiscal 2025.
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