Aging iPhones Could Propel Apple Stock to New Heights, Says Bank of America

Apple's aging iPhone base presents a significant opportunity for stock growth, according to Bank of America analysts. A new upgrade cycle, driven by AI features and customer loyalty, is anticipated to boost the tech giant's performance.

Survey Reveals Most iPhone Users Have Outdated Devices, Presenting Stock Growth Opportunity

According to a recent survey conducted by Bank of America (via Fortune), most iPhone consumers in the United States, the United Kingdom, India, and China possess outdated devices. Approximately 29% of users have an iPhone from the iPhone 13 family, released in September 2021. Additionally, 13% of users from the iPhone 12 family, released in October 2020, and 31% possess an even older iPhone.

In other words, the company's primary product faces adverse news as less than 25% of iPhone users acquired their devices within the past three years.

Tech experts and Wall Street analysts have criticized Apple for failing to give users a compelling reason to upgrade their outdated phones and for falling behind its competitors in new hardware and software offerings. Apple's iPhone demand has plummeted by over 10% in the first quarter of this year, reaching a six-year low.

Apple's revenue in the second quarter was over 50%, with iPhone sales being crucial. However, Bank of America analysts report that iPhone consumers' aging phones may indicate a potential opportunity for Apple stock.

“We are raising our [price target] on Apple to $256 (from $230) on increased confidence of a multi-year iPhone upgrade cycle driven by an aging installed base and GenAI features that should provide a boost to customers’ intentions to upgrade,” analysts led by Wamsi Mohan wrote on July 11. Apple shares currently trade around $232, implying a potential 12-month return of just over 10% for investors if BofA’s price target proves prescient.

BofA Predicts Apple's AI-Enabled ‘Intelliphones’ Will Drive Upgrades Amid New Feature Launches

This new bullish report from BofA results from its analysts' argument in May that Apple will gradually transform its iPhones into AI-enabled "intelliphones" with increased processing power and new applications, thereby compelling customers to upgrade. Apple unveiled several critical features at its annual Worldwide Developers Conference (WWDC) the following month to persuade consumers to purchase new phones. These features included a new and enhanced version of Siri, which will utilize AI technology known as Apple Intelligence.

Apple also announced that it will release a slimmed-down version of its iPhone in June next year, potentially in response to complaints about its lagging hardware development. Additionally, reports suggest that a flip phone similar to those offered by Samsung may be on the horizon.

BofA Cites Customer Loyalty and Wearable Demand as Key Drivers for Apple's Optimistic Outlook

In addition to the forthcoming implementation of new AI software features and hardware enhancements, Wamsi and his team identified Apple's continued customer loyalty as a critical factor in their optimistic outlook.

In contrast to Samsung, Huawei, and Xiaomi, 58% of current iPhone users intend to purchase another iPhone when they upgrade their current device, according to the analysts' survey of Apple customers.

Wamsi and his team contended that there may be a substantial demand for enhancements among wearable technology users. When asked which device they intend to purchase when upgrading, smartwatch owners most frequently mentioned the Apple Watch.

Compared to 59% in China, 57% in the U.S., and 41% in the U.K., approximately 66% of Indian smartwatch users who intend to upgrade indicate that they will purchase an Apple Watch.

Similarly, BofA's analysts discovered consumers are more inclined to purchase the Apple Vision Pro than anticipated despite its substantial price tag. Compared to 20% in China, 36% in India, and 8% in the U.K., approximately 14% of respondents in the United States indicated that they intend to purchase the Apple Vision Pro. BofA's analysts say these percentages are excessive, significantly higher than the February survey results.