For Apple (NASDAQ:AAPL), there was a time when everyone was talking about the iPhone X “super cycle.” Analysts were saying that the new-and-improved iPhone X would have enough bells and whistles to spark unprecedented upgrade demand, and that such demand would push AAPL stock way higher.
That never happened.
Instead, the iPhone X was pretty much a flop from a demand standpoint. AAPL stock dropped after prelim iPhone X numbers were released. But average selling prices on the phone were high, and Apple’s other businesses (namely, Services and Apple Watch) have been red hot. So, AAPL stock has since rebounded from that big iPhone X sell-off and is now at all-time highs.
AAPL stock is a long-term winner because of robust growth potential in the Services business. But when it comes to the iPhone business, I think the investment community had it all wrong. Last year wasn’t the super cycle — this year will be the super cycle. And that super cycle could lead to super-charged gains in AAPL stock over the next several quarters.
Here’s a deeper look.
The Big Screen Trend
Bloomberg recently reported that Apple is set to launch three new phones this year, all three of which will have the edge-to-edge screen design that is characteristic of the iPhone X.
This is a smart move from Apple. Big screens are the future. Just think about all the popular apps these days around the world. They have all migrated from limited visual, News Feed format, to full screen visual, Stories format. Snapchat (NYSE:SNAP) and Instagram are Stories platforms. Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR) are trying to pivot into Stories. Google (NASDAQ:GOOG)(NASDAQ:
GOOGL) is too. Even Netflix (NASDAQ:NFLX) has incorporated Stories format into its app with movie trailers.
Everywhere you look, full screen is in.
Why? Because the phone is the new TV. It is no secret that media and content consumption and engagement are shifting online, and in particular, shifting to mobile. As this shift plays out, the phone becomes more and more like a personal and portable TV. Think about the evolution of the TV. It went from bulky with thick black framing, to thin with edge-to-edge screen display.
Smartphones are making that transition right now, and Apple appears to be leading the charge. The iPhone X was the first of its kind. These three new phones are the next generation of this evolution. Overall, over the next several years, this big screen migration should help Apple sell a ton of iPhones.
Right Phones at the Right Time
If edge-to-edge display is the future, and the iPhone X had edge-to-edge display, then why was iPhone X demand relatively weak?
Price. The iPhone X debuted at an unprecedented $1,000 price point. While that added to the grandeur of the iPhone X launch, it also reasonably subdued demand.
Now, though, Apple is launching three new phones with that same edge-to-edge display, and those three phones will “will boast a wider range of prices, features and sizes to increase their appeal,” according to Bloomberg. Different features and sizes are cool iterations. But the big thing here is price. Apple will finally be selling a next-gen edge-to-edge display iPhone at a price point presumably far lower than $1,000.
By doing so, Apple is removing the one big barrier that kept people from buying the iPhone X: price. With that big barrier removed, demand for these new edge-to-edge iPhones should be huge.
Moreover, these phones are launching at the right time. Consumer spending, confidence, and optimism are all soaring right now. Just look at the huge numbers retailers have been reporting recently. Both Walmart (NYSE:WMT) and Target (NYSE:TGT) just reported decade-best results. Meanwhile, the personal savings rate in the U.S. remains high, trade tensions are easing, the economy is improving, unemployment remain slow, and the stock market is soaring to all-time highs.
In other words, the consumer has every right to be confident today, and that confidence will likely remain for the foreseeable future. Naturally, then, big summer spend should flow into big holiday spend, and that positive consumer backdrop coupled with new, lower-priced phones should help Apple sell a ton of iPhones in the 2018/19 season.
Bottom Line on AAPL Stock
The market got it wrong. The 2017/18 iPhone upgrade cycle wasn’t the super cycle. Instead, the 2018/19 iPhone upgrade cycle will be the super cycle. That super cycle, on top of super-charged growth in Apple’s Services business, should drive healthy gains in AAPL stock over the next several quarters.
Consequently, long AAPL stock seems like the smart trade at this point in time.
As of this writing, Luke Lango was long AAPL, FB, TWTR, and GOOG.
