Apple stock: Excessive optimism about iPhone 14 Pro gains is unjustified (NASDAQ: AAPL)

Singaporeans are waiting for the release of the new iPhone 13

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Apple Inc. (Nasdaq:AAPLThe iPhone 14 launch event “away” has led many Apple bulls to raise their expectations and estimates of iPhone 14 order time, especially the Pro models.

Apple capitalizes on success From the iPhone 13 Pro series, which contains It captured 41% of the iPhone 13 shipment share. It also comes after the success of the iPhone 11 Pro, which accounts for 31% of the charging share. Therefore, Apple is going more aggressively with its Pro lineup to catch switches and adapters as it looks to raise its average selling prices (ASP).

The central argument from Apple Bulls rests on the ecosystem around which Apple is building through the success of its iPhone. Apple’s continued success in expanding its hardware strategy to include the AirPod and Apple Watch is a testament to Apple’s foundational iPhone ecosystem.

We agree that Apple has created a very successful hardware strategy that is almost impossible to replicate. Over the past two years, the supply chain crisis has demonstrated the execution prowess of CEO Tim Cook and his team, although it continues to face significant headwinds in China. Moreover, the MacBook has proven to be resilient against its Windows peers, underlining the strength of Apple’s hardware ecosystem.

Hence, we are not surprised that AAPL outperformed the SPDR S&P 500 ETF (spy) in 2022. Reported total YTD return of -12.6% vs. SPY return of -17.3%.

However, investors need to consider that iPhone market share gains in the US and China may face significant hurdles as ASPs advance. Coupled with the technological advances of Android in high-end smartphones, such as QUALCOMM (QCOM(Strengthens its partnership with TSMC)TSMGoing forward, the gap with Apple could narrow even more. Therefore, it could hamper Apple’s ability to continue to push ASP higher without eroding its competitive edge over its Android peers.

AAPL last traded at a multiple of NTM EBITDA of 19.2x, well above the 10-year average of 10.8x. Therefore, we believe that AAPL is overvalued, with its near and medium term bullish trend reversing well. Despite this, AAPL appears to be near-term support, as its momentum is oversold. Therefore, we urge investors to wait for a short-term rally before reducing exposure further and rotating.

As such, we are reviewing our AAPL rating from sell to hold at the moment.

Over-optimistic about Apple’s iPhone 14 Pro

Renowned analyst Ming-Chi Kuo has updated that his checks indicate that Apple’s iPhone 14 Pro models are tracking well ahead of his previous estimates. Accordingly, the Professional range can account for up to 62.5% (midpoint) of the share of freight in the second half 22, up from 57.5% (midpoint). As a result, assume that Apple’s future guidance in its upcoming FQ4 earnings release may be a surprise to the upside.

Street analysts have also been tracking Apple’s momentum in their Pro models because they play a key role in Apple’s game plan to continue ASP’s rise over time.

The trend of Apple iPhone ASPs

The trend of Apple iPhone ASPs (The Wall Street Journal)

As seen above, ASP increased from $645.16 in 2016 to $860.8 in 2022, which represents a compound annual growth rate of 4.92%. Therefore, we believe that Cupertino has proven the sustainability of the price hike, as it has built its installed base 1B users over time.

However, we urge Apple users and investors to consider how far the company will continue to gain market share, even as the Pro Series’ impact increases its iPhone shipment share.

Counterpoint Research highlighted in a recent note that “Apple’s installed base has exceeded 50% Threshold in the US during the second quarter of 2022.” However, she added, “Apple’s penetration space is very small in the US, and Apple will rely on upgrade cycles to continue selling its mobile devices. “Therefore, the focus will inevitably have shifted to Apple’s ability to expand its hardware strategy through the AirPod and Apple Watch while increasing monetization of its services business. .

Despite this, we also believe that its Android peers are not standing idly by as they look to compete more against Apple in the premium segment. Apple remains TSMC’s preeminent customer, with 3nm process commands Reserved for its A17 chip for 2023.

but, Notable Ming Chi Kou Qualcomm’s additional reliance on TSMC as a foundry partner to manufacture its mobile phones should narrow the competitive advantage with Apple Silicon going forward. Furthermore, MediaTek (OTCPK: MDTKF) is also making solid progress in its premium segments, driving revenue growth in the second quarter. Notably, MediaTek is expanding its focus beyond the lower-end smartphone SoC segment to high-performance computing, IoT and premium smartphones to further diversify its revenue base. Hence, we believe Apple could face stiff competition in its premium segment to move forward while Android lives up to the bet.

AAPL is still expensive

AAPL NTM EBITDA Doubles Valuation Trend

AAPL NTM EBITDA Doubles Valuation Trend (quivin)

As seen above, the AAPL buying upside has faced significant challenges beyond the two standard deviation areas above the mean NTM EBITDA multiples. Hence, we are increasingly confident that AAPL’s near-to-medium-term uptrend has accordingly reversed at its current levels.

We think Apple could face significant challenges in expanding its iPhone dominance over the next few years, given its share gains. Hence, its current assessment does not justify the implementation risks that Apple would face going forward. Furthermore, given its revenue exposure, we don’t expect the growing services segment to de-focus the market on its iPhone challenges.

AAPL Price Chart (Weekly)

AAPL Price Chart (Weekly) (TradingView)

AAPL price is likely to bottom in the near term, given the oversold technical indicators. However, we have come to the conclusion that the near-term resistance ($180) has decisively rejected the buying momentum over the past year. Besides overvaluing AAPL, we believe the risk-return profile is not attractive at current levels.

Hence, we urge investors to use a potential rally in the short term to reduce exposure further. Hold on to your iPhone if you want to, but not AAPL, especially if you’re very vulnerable.

Looking at its near term bottom, We are reviewing our rating from sell to hold at the moment.

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