What A Pricier New iPhone Would Mean For Apple Stock

AAPL: Apple logo

Apple (NASDAQ:AAPL) is expected to launch its new iPhone 14 as well as upgrades to the Apple Watch and Airpods at a special event to be held on September 7. The iPhone remains Apple’s most important product, accounting for over half its total revenue. So what will the launch of the new iPhone devices mean for Apple’s finances and its stock?

With smartphone volumes plateauing, we think that Apple will continue to focus on raising the average selling prices and margins for its iPhones. As usual, Apple is likely to launch two Pro versions of the device and two standard versions of the device. However, Apple is expected to launch a larger screen version of the standard iPhone 14 (likely with a 6.7-inch screen) while axing the lower-priced 5.4-inch iPhone mini lineup, per Bloomberg. We also think it’s likely that Apple will marginally hike pricing, given the increase in component prices and also due to the fact that base prices have remained the same for two years on the regular iPhones and for close to five years on the premium models. Apple could also look to upsell more customers toward the Pro devices, with more new exclusive features and design tweaks. For instance, it is expected that the signature iPhone notch, which houses sensors and cameras will be replaced by pill-shaped cutouts on the screen of the Pro models, with the Pro models potentially offering always-on displays.

Now, the launch of the new iPhone comes against the backdrop of a relatively tough macro environment. U.S. GDP has contracted over the last two quarters straight and consumers have been scaling back on retail spending amid rising inflation, while prioritizing services and experiences. However, we don’t think that the uptake of Apple’s upcoming devices will be meaningfully impacted. For perspective, over the last two quarters, iPhone sales rose by an average of 4% versus last year, despite the broader economic contraction. Moreover, wireless carriers are also likely to support the sales of the iPhone via promotions, as they look to bring more customers onto their newly built 5G networks.

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We have a $178 per share valuation for Apple, which is about 6% ahead of the current market price.   See our analysis on Apple Valuation: Is AAPL Stock Expensive Or Cheap? for an overview of what’s driving our price estimate for Apple. Also, see our analysis of Apple revenue for more details on the company’s key revenue streams and how they have been trending.

With inflation rising and the Fed raising interest rates, Apple has fallen 7% this year. Can it drop more? See how low can Apple stock go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

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