Expect a strong next 12 months from Apple, says Deepwater's Gene Munster

Hello, Melissa.

I'm feeling good about it for two reasons. Number one, I think that the guidance that they gave for the September quarter, which recall was revenue growth of 9 to 11%, the street was at 12%, triggered a 9% sell-off in the stock. I think that guidance really was much better than what people what the initial numbers looked at. Just to put some quick context on that, they obviously had the FX headwind, which is plus 2.5%. So that dampened the growth rate. And then separately, I think there was a dynamic they had this inventory dynamic, which had a negative couple percent impact. But also importantly, I think Apple is moving to a shifted upgrade cycle. Specifically this fall, we're probably going to see the high-end phones get upgraded, which is typically about 60% of the new phone sales, but they're probably going to push another 40% into the March or June quarter of next year. And the reason why that's important relative to guidance is Apple's not going to announce that when they report their June quarter, but their guidance for September is going to reflect that. And so I think that if, in fact, that does happen, they shift this product cycle, I think that the numbers investors will start to do the numbers. And effectively what happens is you get some more juice out of September, because people who can't hold off are going to upgrade to the more expensive phones. And then separately, you get that extra boost kind of next year. And the net effect of that, I think you're going to get higher sales. So, Melissa, when you put this together, I think still at the core is the iPhone, at least for the next few quarters. And then of course, you've got some of these other X factors regarding the new Siri. And so I think that Apple is in a great position. Last piece I think largely gets missed. There's going to be a massive upgrade cycle around consumer hardware. That's probably going to start mid to late '27 and probably go for a few years. And that's based on personalized AI. That's going to do inference on device, that's going to benefit Apple, that's going to benefit other hardware makers. And so when you put this together, Melissa, I think shares are undervalued. And I think we're going to see a strong next 12 months.

Right. So there's the two factors there. Of course the increased price. We haven't seen the new prices with the new iPhones. But I think you can rest assured it's probably plus 15%. That's a big jump when you look at the factor that effectively, the average selling price of the iPhone is about $850. And so we're talking about $125 in jump. But keep in mind also that the majority of people buy these on a subscription basis, whether it's through the carrier or through Apple. And so we're talking a couple dollars per month. I think that the demand, the demand softening related to this price increase is going to be modest. And I think the net effect of all of this is you're probably going to see somewhere between an 8 and a 10% bump in revenue growth. And so if we look at the calendar '27 numbers, the street's high single digits, I think you can see low teens growth rate. And as far as margins is concerned, yes, the CXMT opportunity is juicy. It's juicy in the context that 20% of iPhones are sold in China. So that's where that cheaper in quotes memory would go if in fact they do that, if they get that. But I wouldn't focus too much on what potentially could happen on the supply chain, on memory, focus more on the price increases. That's there's substance there. It's going to basically keep margins stable. And at the end of the day, if you believe that AI, there's a big opportunity around personalized AI. The opportunity for Apple is much bigger than any sort of nuance around memory costs.