“Investors have historically underestimated Apple’s gross margins and it appears that it is happening again,” BofA Securities analyst Wamsi Mohan writes in a note to clients.
Investors have found plenty of reasons to sour on Apple Inc. shares this year, sending them down more than 12% over the course of 2024 to date even as the S&P 500 SPX has advanced 8%.
But what if Wall Street is missing the point on Apple — again? That’s an issue BofA Securities analyst Wamsi Mohan explored in his latest note to clients as he looked at how investors have gotten things wrong on Apple shares in the past.
The company’s long-term margin potential remains compelling, according to Mohan, and if you go back a few years, you can see Wall Street’s tendency to lowball its projections there. For example, in 2018, the consensus view forecast was for 39% gross margins for fiscal 2023, but Apple recorded 44% for that period.
Now, looking forward, he thinks the company could drive about 180 basis points of gross-margin upside on the product side of the business, as well as 150 basis points of upside in services over the coming years.
“Consumers are opting for more higher-end devices (higher price), but we also expect Apple to raise pricing of individual hardware devices over time, which can be accretive to gross margin,” Mohan wrote.
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MacDailyNews Note: Mohan maintains a “Buy” rating and $225 price tragte on Apple shares.
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Indeed, but this time they could be right. Modern Apple is a joke. If someone can create a legitimately viable alternative (not Linux), I will happily jump ship after decades of loyalty. The chips are great. Their modern engineers, their modern culture: frankly, they can go to h***. I would love to throw away my iPhone, but there is no viable alternative at present. The second someone creates one: whoo boy, Apple is in big, big trouble.
You could that about any product.
Fact is that Apple products are reliable, do their job, and are generally pleasanter to use than the opposition.
The alternative exists already in all the Android variants. They are all me-too products that don’t have the same hardware/software integration and ecosystem iterated for 17 years like Apple, but they’ve gotten much better. How well they implement AI will be a big turning point if Apple struggles. No one is going to create an iPhone competitor in their garage. For the Western world it’s Google or Samsung, that’s it. The latter is much stronger than Apple in Europe because of way lower prices.
As phones become increasingly commoditized Apple needs to justify the high costs. People may not dump the iPhone but they’ll just buy a used one that’s 2-3 years old when they still do 95% of what the new one does. My current iPhone was bought used and unless the new iPhones really provide compelling features in AI this September I’ll definitely buy used again. Instead of upgrading every 3 years like I have been I may also just keep using my 12 Pro Max until it doesn’t get security updates any more.
Pretty good/interesting summary. I’ve never used Android and didn’t know “the latter” was much stronger in Europe than AAPL?
Correct; commoditization of the ph/iPh will require AAPL to notably differentiate. That time is almost now. Far gone are the crazy crowds sleeping overnight to be the early-birds for the latest iPh. It’s been yrs.