Apple is gearing up for its biggest hardware launch of the year, dubbed ‘Glowtime,’ scheduled for Monday, September 9th at the Steve Jobs Theater in Cupertino. While the event is primarily focused on the iPhone 16, it’s also expected to feature new Apple Watch models, Series X and Ultra 3, and potentially new AirPods.
Morgan Stanley analyst Erik Woodring offers his insights on what to expect from the event and its potential impact on AAPL stock. He anticipates the iPhone 16 launch to follow typical seasonality, with the stock likely underperforming the market on launch day and experiencing modest outperformance in the following three months. However, he believes the potential for pent-up demand, driven by the iPhone 16 and Apple Intelligence features, could lead to better performance than historically observed.
Woodring highlights several key factors that could drive stock performance. The iPhone’s upgradable base is currently 40% larger than during the 5G cycle, and he expects the iPhone replacement cycle to accelerate. This is significant because Apple shares historically underperform when replacement cycles contract and outperform when they elongate.
What’s New with the iPhone 16?
The iPhone 16 family is expected to feature several upgrades, including:
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Catch-up upgrades for the iPhone 16 and iPhone 16 Plus:
These models are anticipated to include features like the addition of an Action button, similar to a shutter button on a digital camera.*
More pronounced component upgrades for iPhone 16 Pro and Pro Max:
These upgrades include thinner bezels, larger displays, slightly larger form factors, a periscope lens for the iPhone 16 Pro, and a new, faster A18 Pro chipset with enhanced AI capabilities.*
Improved battery capacity:
Woodring expects Apple to introduce a larger battery in the iPhone 16 Pro and Pro Max, which will be crucial given the computing power required for Apple Intelligence features.*
Metal casing:
The iPhone 16 Pro and Pro Max are expected to feature a metal casing to improve heat dissipation.Woodring believes Apple will maintain the same pricing for all iPhone 16 models compared to their iPhone 15 counterparts. However, he expects Apple to eliminate the 128GB iPhone Pro SKU, raising the starting price of the iPhone 16 Pro to $1,099.
Apple Intelligence and Potential Wildcards
Apple Intelligence is expected to play a significant role in the event, with ‘Glowtime’ likely referencing the new Siri user interface in iOS18. However, Woodring expects Apple Intelligence feature introductions to be staggered throughout the Fall. He believes Apple will highlight the performance of Apple Intelligence on the new iPhone 16 models, potentially encouraging consumers to associate the feature with the need for a new iPhone.
While Morgan Stanley currently assumes status quo pricing, Woodring acknowledges the possibility of Apple raising prices for the new iPhones. This could have a negative impact, potentially causing some consumers to delay their upgrades.
Other potential wildcards include the new Apple Intelligence features, language support, the aggressiveness of wireless carriers for the new iPhone launch, and year-over-year changes in trade-in values.
Morgan Stanley’s Outlook
Morgan Stanley maintains an Overweight rating and a $273 price target for AAPL stock. They expect the iPhone 16 to account for 68% of Apple’s fiscal year 2025 iPhone shipments, with an average selling price increasing 5% year-over-year. Their sensitivity analysis suggests that every 1% increase in the iPhone ASP translates to a 3 cent per share earnings per share upside in 2025.
Overall, the iPhone 16 launch is expected to be a major event with potential to significantly impact AAPL stock. While the event holds promise for strong performance, factors like pricing and the rollout of Apple Intelligence will play key roles in shaping the stock’s trajectory.
