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Apple: Bullish Story Continues with Robust Demand

Apple (AAPL) investors were worried Thursday over news that the demand for its iPhone 13 could be slowing down.

A Bloomberg report said that Apple had told its suppliers that demand for iPhone 13 had weakened, and as a result, certain orders may fail to materialize.

This news didn’t seem to be a cause for worry for Wedbush analyst Daniel Ives. The analyst remained confident about the iPhone 13 growth cycle and said that his checks indicated that demand continues to be solid for iPhones in both the U.S. and China, and “Apple is now on pace to sell north of 40 million iPhones during the holiday season despite the chip shortage headwinds.”

Ives estimates that in China alone, there could be “roughly 15 million iPhone 13 upgrades for the December quarter as this key region remains a major source of strength for Apple heading into 2022 and beyond.” (See Analysts’ Top Stocks on TipRanks)

It is important here to note that when it comes to the iPhone cycle, Tim Cook, CEO of Apple, stated on the Q4 earnings call that, “if you look at our results from last quarter, we grew on upgraders and switchers in the double digits. And so, both were very meaningful for the iPhone results last quarter.”

Supply Chain Issues

Analyst Ives acknowledged that while the supply chain issues have resulted in cutting back some of Apple’s growth, the pent-up demand for Apple’s products continues to remain strong.

He added that average selling prices (ASPs) continue to be positive for Apple’s iPhone Pro/Pro Max models with “roughly 250 million of 975 million iPhones worldwide not upgrading in 3.5 years.”

The analyst views supply chain issues as “nothing more than a speed bump on a multi-year supercycle iPhone 12/13 that continues to play out.”

Apple: A ‘Safety Blanket

Ives believes that Apple’s “fundamental story” will strengthen into the next year on the back of a robust product cycle. As a result, the analyst considers the stock a “safety blanket” for investors that will be able to weather the market volatility resulting from macroeconomic worries and new mutants of the coronavirus.

Apple is the analyst’s favorite name to own in the technology sector and he believes that “the risk/reward is very favorable at current levels” for the stock.

Moreover, valuing Apple on a sum-of-the-part (SOTP) basis, Ives thinks that the Services business could be worth $1.5 trillion “as this $75 billion + annual revenue stream is showing no signs of slowing down.”

Apple’s Services business consists of advertising, AppleCare, digital content, cloud and payment services. This business earned revenues of a record $18.3 billion in fiscal Q4, up 26% year-over-year.

Furthermore, Ives is convinced that Apple could very well achieve a market cap of $3 trillion during 2022 based on SOTP valuation.

As a result, the analyst is bullish with a Buy rating. He also raised his price target from $185 to a Street high of $200 (24.2% upside) on the stock.

Other analysts on the Street, however, are cautiously optimistic with a Moderate Buy consensus rating based on 21 Buys, five Holds, and one Sell. The average Apple price target of $168 implies 4.4% upside potential to current levels.

Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article.

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