Don't Hang Up On Apple's (AAPL) iPhone 8 Super-Cycle

Apple (Shutterstock photo)Apple (Shutterstock photo)

Depending on who you ask, Apple’s (AAPL) upcoming iPhone 8 refresh — aptly referred to as a supercycle — will either be a massive home-run or a major dud. The Cupertino-based tech giant has scheduled a September 12th media event, during which it is expected to unveil the new iPhone.

With reports suggesting the new device will cost as much as $1,200, expectations are understandably high. But for some observers believe now is the time to take AAPL profits, which on a year-to-date, has already gained 40%. The belief is, “buy the rumor, sell the news” — a point made Wednesday by Ned Davis Research.

The concern is, Apple is entering a period of not only stiffer adversary in nemesis Samsung (SSNLF), which last month released the Galaxy Note 8 with a starting price at $930, Apple must also fight off competition from fast-growing device makers in China, which has pressured Apple’s sales in the world’s most-populous country. And on top of that, there is fear that the smartphone market has reached saturation, which means anyone who has been in the market for a phone likely already has one.

But here’s the thing: As strong of a bearish argument that might have sounded, including those who cite recent weakness in iPhone sales as cause for concern, some Wall Street analysts believes recent weakness in iPhone shipments is the reason to buy APPL stock now and expect a supercycle home-run.

In a research note released to investors Wednesday, Jeffrey Kvaal, analyst at Nomura Securities, who raised his price target on Apple shares to $185 from $175, laid out a scenario where he believes current bearish sentiment regarding what some perceive as weak demand for new iPhones is flawed. “We observed a very soft market for replacement phones, marked by particularly low replacement rates in carriers with the highest iOS penetration during the March and June quarters,” Kvaal noted.

He continues. “For example, AT&T (T), the carrier with the highest iOS penetration, had the weakest absolute upgrade rates and the sharpest year-over-year declines in upgrade rates (-22% and -11%, respectively). T-Mobile (TMUS), which has the lowest iOS penetration, had the strongest year-over-year absolute upgrade rates (unchanged and +17%).”

Kvaal sees the correlation between the carriers with highest iOS penetration rate and their decline in sales as suggesting their is significant pent-up demand for the new phone. And while the decline in unit sales may appear as a result of market saturation, Kvaal — who has a Buy rating on AAPL shares, implying 15% upside — believes that existing iPhone users are just holding out for the latest model.

As such, he expects the super cycle to rake in more than 660 million iOS users by year’s end, which would translate to a 65% jump in a short three-year period. Why is that important? That marked the beginning of the last supercycle when the iPhone 6 launched.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas , Stocks , Technology
Referenced Symbols: AAPL , TMUS

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