Company Reports

We maintain our $160 fair value estimate, medium uncertainty rating, and wide moat rating for Apple after the company was hit with an antitrust suit from the US Department of Justice. We are not surprised by the suit, as it had been rumored for months and follows similar action against other large technology firms like Alphabet's Google. We also don’t foresee the suit resulting in a significant demolition of Apple’s business or wide moat. In our base case, we assume the suit will result in some opening up of Apple’s walled garden ecosystem, similar to what we expect from the European Union's Digital Markets Act. We continue to believe that most Apple users opt in to the firm’s premium closed ecosystem, and we don’t foresee significant attrition from Apple’s products and services even under a more open environment. The shares dipped more than 3% intraday in March 21 trading, a stark difference from other technology stocks' positive performance. We see Apple as fairly valued.

We maintain our $160 fair value estimate for shares of wide-moat Apple as we lower our short-term revenue forecast but raise our expectations for profitability. Apple’s December quarter iPhone revenue and gross margin exceeded our expectations. Still, we believe the iPhone will see a softer adoption cycle this year and lower our fiscal 2024 forecast for iPhone revenue to a modest decline. Apple is also facing revenue headwinds in China. In the short term, we see demand headwinds for Apple relating to elongating personal device replacement cycles and more aggressive domestic alternatives in China. In the long term, we maintain our view that Apple can drive growth from its unique combination of hardware, software, and services that also elicits steep customer switching costs and underpins our wide moat rating. Apple shares went about 3% lower following results, likely due to weaker China results and lower iPhone expectations, but we continue to see the stock as overvalued.

We believe Apple has cemented a long-term position atop the consumer electronics industry with a focus on a premium ecosystem of tightly integrated hardware, software, and services. We see the flagship iPhone as the linchpin of this ecosystem, from which Apple derives pricing power, switching costs, and a network effect. In our view, every other Apple device and service sees its greatest value from further locking in customers to this walled garden. This approach earns the firm a wide economic moat rating.

We believe Apple has cemented a long-term position atop the consumer electronics industry with a focus on a premium ecosystem of tightly integrated hardware, software, and services. We see the flagship iPhone as the linchpin of this ecosystem, from which Apple derives pricing power, switching costs, and a network effect. In our view, every other Apple device and service sees its greatest value from further locking in customers to this walled garden. This approach earns the firm a wide economic moat rating.

We raise our fair value estimate for wide-moat Apple to $160 per share, from $150, after modest upward revisions to our five-year sales forecast. We also lower our Uncertainty Rating for Apple to Medium, from High, based on higher conviction in the firm’s ability to offset consumer spending cycles with its premium and differentiated approach. We continue to see Apple as a dominant technology ecosystem provider meriting a wide economic moat, and we maintain our Exemplary capital allocation rating based on a strong investment track record that has helped carve the firm’s moat.

Wide-moat Apple reported solid fiscal fourth-quarter results while providing investors with a decent fiscal first-quarter outlook with revenue in line with our expectations, but modestly below FactSet consensus estimates, which we think contributed to the 3% selloff in shares after hours. We maintain our $150 fair value estimate and view shares as modestly overvalued as we don’t foresee massive hardware growth out of existing products like the iPhone in the years ahead.

We maintain our $150 fair value estimate for wide-moat Apple as the company announced its annual update to its lineup of iPhones (the iPhone 15 series) and watches (Apple Watch Series 9 and Ultra 2). Overall, we’re delighted with Apple’s innovation within these devices, as the firm continues to show off its cumulative expertise (and competitive advantage) in hardware, software, services, and semiconductors. Nonetheless, with shares trading around $175, we continue to view shares as modestly overvalued as we foresee only mid-single-digit revenue growth for the company over the next few years.

Wide-moat Apple reported solid results for its fiscal third quarter and provided investors with a flattish outlook for the fourth quarter. We continue to take Apple’s results in both the June and September quarters with a grain of salt as they are composed of the older iPhone series; we would instead keep our eyes on the next wave of Apple devices and whether the company can entice a larger portion of its customer base to buy the latest and greatest iPhone.

As expected, Apple’s Worldwide Developers Conference keynote was highlighted by Apple Vision Pro, the company’s augmented reality headset expected to arrive in early 2024. We maintain our $150 fair value estimate for Apple, as we don’t envision the company selling enough units of these devices to move the needle on its massive valuation, which is still dominated by the far more pervasive iPhone.

Apple’s consumer hardware dominance stems from its ability to package hardware, software, services, semiconductors, and third-party applications into sleek, intuitive, and appealing devices. This expertise, coupled with its walled garden approach for its unique iOS ecosystem, enables the firm to capture a premium on its devices, unlike most of its peers that rely on open operating systems, Windows and Android, in particular. We see no other technology titan with comparable expertise across consumer hardware, software, services, and chip design. In turn, we believe this integration allows Apple to build premium devices that command industry-leading average selling prices and margins, most notably the firm’s crown jewel: the iPhone.

Apple's fiscal second-quarter results surpassed our estimates, thanks to outperformance in iPhone and services revenue. We had been anticipating a slowdown in the firm’s hardware products following several years of strong growth related to COVID-19-induced work- and learning-from home trends, as well as the initial rollout of 5G. Although most segments fell on a year-over-year basis, we were pleased to see the iPhone and services units exhibited modest growth. We remain cautious of the next several quarters for the firm as macroeconomic headwinds persist, though we concede that wide-moat Apple will fare better than many of its smartphone peers. Our fair value estimate remains $150 per share, and shares appear overvalued at current levels.

Apple reported weaker fiscal first-quarter results that fell short of our estimates due to a combination of supply shortages for its iPhone 14 Pro models, macroeconomic challenges, and foreign exchange headwinds. We have been anticipating a slowdown in the firm’s hardware products following several years of strong growth related to COVID-19-induced work- and learning-from home trends as well as the initial rollout of 5G. Shares fell modestly during after-hours trading and are relatively in line with our unchanged fair value estimate of $150 per share. Although we remain positive on wide-moat Apple’s iOS walled garden, we expect the upcoming quarters to be challenging and thus recommend prospective investors wait for a wider margin of safety.

We are upgrading our economic moat rating for Apple to wide from narrow, as we have greater confidence in the firm’s competitive advantages stemming from high customer switching costs, intangible assets, and network effects associated with its iOS ecosystem. We believe switching costs from iOS are as strong as ever thanks to more auxiliary products and services that make switching away from iOS more difficult over time. Regarding intangible assets, Apple’s differentiated user experience via iOS coupled with its expertise in hardware, software, and now semiconductor design allows the firm to build vertically integrated products more seamlessly. We also see network effects around iOS and its 1 billion-plus installed base with new app development favoring iOS.

Apple’s consumer hardware dominance stems from its ability to package hardware, software, services, semiconductors, and third-party applications into sleek, intuitive, and appealing devices. This expertise, coupled with its walled garden approach for its unique iOS ecosystem, enables the firm to capture a premium on its devices, unlike most of its peers that rely on open operating systems, Windows and Android, in particular. We see no other technology titan with comparable expertise across consumer hardware, software, services, and chip design. In turn, we believe this integration allows Apple to build premium devices that command industry-leading average selling prices and margins, most notably the firm’s crown jewel: the iPhone.

Narrow-moat Apple reported impressive fiscal fourth-quarter results that came ahead of our estimates thanks to iPhone and Mac strength. We are maintaining our $130 fair value estimate and still view the shares as overvalued. While we remain positive on Apple's ability to extract revenue and robust profits from its installed base via new products and services, we believe demand for the company's products is likely to slow in the next few quarters following several stellar quarters of growth.

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.

Narrow-moat Apple reported healthy fiscal third-quarter results that came in line with our estimates. We are maintaining our $130 fair value estimate and still view shares as overvalued. While we remain positive on Apple's ability to extract sales from its installed base via new products and services, we believe demand for Apple’s products is likely to slow in the next few quarters, following several stellar quarters of growth.

Narrow-moat Apple reported fiscal second-quarter results that came in ahead of our estimates despite supply chain constraints and the ongoing chip shortage. Demand for the firm's latest iPhone 13 and MacBook Pro drove record iPhone and Mac revenue for the March quarter. We remain positive on Apple's ability to extract sales from its installed base via new products and services. However, management expects June quarter revenue to be $4 billion-$8 billion lower than usual because of supply constraints stemming from COVID-19-related disruptions, the ongoing chip shortage, softer customer demand in China, foreign exchange headwinds, and a pause in sales in Russia. Shares fell about 2% during after hours trading but remain above our unchanged fair value estimate of $130 per share. We believe the recent stretch of strong revenue growth will be difficult to maintain as COVID-19-related Mac and iPad demand subsides.

Apple’s competitive advantage stems from its ability to package hardware, software, services, and third-party applications into sleek, intuitive, and appealing devices. This expertise enables the firm to capture a premium on its hardware, unlike most of its peers. Despite its admirable reputation, loyal customer base, and unique products, the consumer hardware space can be unforgiving to firms unable to consistently satiate the customer’s appetite for more features. Given the short product cycles of Apple’s products and army of firms targeting its dominance, we do not believe Apple has a wide economic moat.

Narrow-moat Apple reported stellar fiscal first-quarter results that came in substantially ahead of our estimates despite supply chain constraints and the ongoing chip shortage. Demand for the firm's latest iPhone 13 and MacBook Pro drove record iPhone and Mac revenue for the December quarter. We remain positive on Apple's ability to extract sales from its installed base via new products and services. While we are raising our fair value estimate to $130 per share from $124 to account for the stronger results, we think the recent stretch of double-digit revenue growth will be difficult to maintain as COVID-19-related Mac and iPad demand subsides.