Apple Stock Rises Following iPhone 16 Launch; Analyst Predicts Further Upside

Apple Inc. (AAPL) has seen its stock price increase by 4.2% since the launch of its latest iPhone 16 lineup. This rise is backed by a recent analysis from Bank of America, which suggests that manufacturing cost reductions could enhance the company's profit margins.

The teardown study conducted by Bank of America demonstrates notable decreases in costs for the Pro models of the iPhones. This analysis reflects Apple's strategic pricing decisions across its entire range of products.

The Analyst Perspective: Analyst Wamsi Mohan from Bank of America has given Apple a "Buy" rating and set a price target of $256, indicating approximately an 8% upside from the previous closing price.

Insights from the Teardown Analysis: The analysis highlights that manufacturing costs for the iPhone 16 Pro models have improved significantly. Interestingly, while the base models have seen an uptick in manufacturing costs, the Pro models have benefitted from cost reductions.

Specifically, the cost to manufacture the iPhone 16 Pro Max is about 5% lower than that of its predecessor, which translates into a contribution of around 320 basis points to the company's gross margins. When factoring in memory costs, the year-over-year savings rise to approximately 8%. BofA notes that at Apple’s scale, these savings can add up to around $3.7 billion for 250 million iPhones, potentially boosting product gross margins by over 100 basis points once fully implemented.

• It was noted that main electronic assemblies now make up 50% of the manufacturing costs for the iPhone 16 Pro Max, an increase from 47% in the last model.

• The base iPhone 16 shows a 10% rise in manufacturing costs in comparison to the iPhone 15, primarily driven by enhancements in AI processing and camera technology. However, adjusting for memory costs reduces this uptick to about 6%.

• The analysis suggests potential savings of at least $10 per iPhone by insourcing the baseband modem from Qualcomm Inc. (QCOM).

• The company's initiatives towards vertical integration may also contribute to further margin improvements. For instance, Apple is estimated to spend about $250 on integrated circuits for each iPhone 16 Pro Max, which indicates scope for significant cost-saving through component insourcing.

Importance of Findings: These findings bolster Bank of America’s overall projection regarding Apple’s margin resilience. The bank anticipates solid iPhone upgrade cycles in fiscal years 2025 and 2026, driven by evolving hardware requirements aimed at supporting generative AI features.

Apple's gross margins have shown a positive trend in recent years, attributed to the increasing share of services and stable margins on iPhones despite advancing functionalities.

As of the latest trading data, Apple shares were priced at $237.87, exhibiting a nearly 30% increase over the past year. The company is set to release its first-quarter earnings for 2025 on January 30. In October of the previous year, Apple's fiscal fourth-quarter revenues reached $94.9 billion, exceeding analysts' expectations of around $94.56 billion.

Stock Activity: On Wednesday, Apple’s shares rose by 1.97%, closing at $237.87. Following this, they edged up slightly in after-hours trading to $238.60 based on information provided by Benzinga Pro.

Currently, the consensus price target for Apple stands at $245.17, derived from assessments made by 30 analysts. Notably, Wedbush set the most ambitious target at $325 in late December. However, the latest ratings issued by MoffettNathanson, Bernstein, and Bank of America Securities suggest an average target of $234.67, indicating a potential downside of around 1.65%.

Next Steps: Investors will be watching for more insights from Apple's earnings report scheduled for late January, as it can provide further clarity on the company's financial health and market strategies.

Apple, Earnings, Analysis