Apple Stock Surges Post iPhone 16 Launch: Analysts Forecast Additional Growth

Apple Inc. (AAPL) demonstrated a significant increase of 4.2% in its stock price following the launch of the latest iPhone lineup, according to a recent report from Bank of America.

Bank of America conducted a detailed teardown analysis, revealing encouraging trends in manufacturing costs, particularly for the Pro models of the iPhone 16. This analysis underlines the company’s strategic pricing strategy across its entire product line.

Analyst Insights: Wamsi Mohan, an analyst at Bank of America, has maintained a "Buy" rating on Apple with a price target of $256. This suggests an expected rise of nearly 8% from the recent closing price.

Manufacturing Cost Analysis: The teardown findings indicate that the manufacturing costs for the iPhone 16 Pro models have seen significant reductions compared to their predecessors. In particular, the manufacturing cost of the iPhone 16 Pro Max is 5% lower than that of the iPhone 15 Pro Max, contributing to an estimated improvement of approximately 320 basis points in gross margins. When taking memory costs into account, the year-over-year savings rise to about 8%.

Mohan emphasizes that given Apple’s vast production scale, these savings translate to roughly $3.7 billion if 250 million iPhones are produced, which could enhance product gross margins by more than 100 basis points once production ramps up.

Highlights From the Analysis:

• Main electronic assemblies account for 50% of the manufacturing costs of the iPhone 16 Pro Max, an increase from 47% seen in the iPhone 15 Pro Max.

• In contrast, the base iPhone 16 models exhibit a 10% rise in manufacturing costs compared to the iPhone 15, largely driven by advancements in AI processing and enhancements in camera technology. After making adjustments for memory costs, this increase is estimated to be reduced to around 6%.

• There is potential for at least $10 savings per iPhone through in-house production of the baseband modem that is currently supplied by Qualcomm Inc. (QCOM).

• Efforts aimed at vertical integration may lead to additional enhancements in margins, as Apple spends approximately $250 on integrated circuits for each iPhone 16 Pro Max. This opens up further opportunities for cost reduction through the internal sourcing of components.

Importance of Findings: The Bank of America analysis aligns with their broader perspective on Apple's ability to maintain robust margins. They anticipate strong iPhone upgrade cycles during the fiscal years 2025 and 2026, propelled by the increasing need for hardware supporting generative AI features.

In recent years, Apple has seen rising gross margins, supported by a favorable service mix and stable iPhone margins, which continue to hold despite the introduction of more complex functionalities.

Currently trading at $237.87, Apple has witnessed nearly a 30% increase in its stock value over the past year. The company is expected to release its first-quarter 2025 earnings report on January 30. Last October, Apple reported a fiscal fourth-quarter revenue of $94.9 billion, exceeding analysts' expectations of $94.56 billion.

Stock Performance: Apple’s stock rose by 1.97% on Wednesday, closing at $237.87. In after-hours trading, it experienced a slight increase of 0.31%, reaching $238.60, according to data from Benzinga Pro.

Analysts have set a consensus price target of $245.17 for Apple, calculated from responses of 30 analysts. Among these, Wedbush has the highest target at $325, as of December 26. Current evaluations from MoffettNathanson, Bernstein, and Bank of America Securities suggest an average target of $234.67, indicating a potential downside of 1.65%.Apple, Stock, iPhone