We See Modest iPhone 14 Upgrades Leading to Modest iPhone Growth in Fiscal 2023; Shares Overvalued

On Sept. 7, Apple held its annual product showcase, where the firm announced the launch of new iPhones, Apple Watches, and AirPods. Apple launched four new iPhone models: the iPhone 14 ($799), iPhone 14 Plus ($899), iPhone 14 Pro ($999), and iPhone 14 Pro Max ($1,099), with pricing unexpectedly consistent with equivalent models from the prior year. We had expected some price increases given recent inflationary pressures, but we think Apple was able to hold prices steady by reusing the same A15 Bionic processor in the base iPhone 14 model as the iPhone 13, while only the iPhone 14 Pro received the latest A16 Bionic processor. Consequently, we think the firm's product gross margins should remain relatively steady in the mid-30% range. Beyond the typical chip, battery, and camera enhancements, we equate many of the updates to those of past iPhone "S" models that were more incremental in nature. While 5G penetration still has room to grow, we think Apple's fiscal 2023 iPhone growth is likely to be more muted than the growth implied by the current stock price. We are maintaining our $130 fair value estimate for narrow-moat Apple and see shares as overvalued.