Apple’s higher prices give iPhone doubters reason for optimism

[CHICAGO] Apple’s latest iPhones did not dazzle with new features, but investors are starting to look past that, seeing higher price tags on the devices as a reason to buy the company’s shares.

The stock had a five-day winning streak after slumping in the wake of last week’s product unveiling, which included a thinner iPhone that failed to generate much excitement. Behind the rebound is optimism that more expensive phones, like the top-of-the-line Pro model that retails for as much as US$1,999, could support Apple’s revenue growth even if customers do not rush to upgrade.

Average selling prices for iPhones, which account for more than half of Apple’s revenue, are expected to rise about 4 per cent in fiscal 2026 compared with an expansion of 1.5 per cent in 2025, according to Bloomberg Intelligence estimates. That comes after nearly a decade in which prices throughout the iPhone lineup were largely flat.

“Prices are being really increased for the first time in several years, so if we see a typical replacement cycle with higher prices, plus some progress on AI, that may not be an exciting setup for the stock, but it’s a decent one,” said John Belton, portfolio manager at Gabelli Funds, which has US$33 billion in assets under management.

Apple shares slipped 0.3 per cent on Thursday.

Apple shares have rallied in the past two months amid easing tariff risks, but the stock is still lagging behind Big Tech peers as the company struggles to deploy AI features. The stock is down almost 4 per cent this year, compared with a 16 per cent gain for the Nasdaq 100 Index.

Sluggish sales growth has long been a sticking point for Apple. While its most recent results featured the fastest expansion in quarterly revenue in more than three years, they are still expected to rise just 6 per cent in the current fiscal year and next. That’s less than half the revenue growth expected for the S&P 500 tech sector in 2025 and 2026, according to data compiled by Bloomberg Intelligence.

At the same time, Apple trades at 30 times estimated earnings, nearly 50 per cent above its 10-year average. The multiple is in line with Nvidia and higher than Alphabet, Amazon.com, and Meta Platforms, all of which boast faster revenue growth.

The combination of a pricey valuation, tepid growth and lack of innovation has pushed analyst sentiment on the shares to a five-year low, with buy ratings barely outnumbering hold and sell ratings.

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DA Davidson analyst Gil Luria downgraded the stock last week, saying he was “uninspired” by the new products.

“While we were initially excited about the prospects of Apple’s role in the AI ecosystem and potential major upgrade cycle, it has become clear to us that neither of those are likely to come to fruition in the near-term,” Luria wrote on Sep 11.

While Apple has a huge base of iPhone users, the challenge is that customers have been holding on to them for longer. Wall Street has long been waiting for new features, as opposed to incremental improvements to the camera, memory or battery life, to entice consumers to trade up en masse.

In 2024, investors bet big that AI would be that kind of must-have feature, but Apple’s offerings have been lacklustre or they were delayed. After being a focus of last year’s product demos, AI was sidelined in the latest software redesigns unveiled in June, leading to disappointment.

More ambitious changes, such as a foldable iPhone, are anticipated next year. However, some Wall Street pros see conditions for iPhone 17 sales to outperform expectations. Early demand is stronger than it was for last year’s predecessor models, according to an examination of lead times by Morgan Stanley analyst Erik Woodring. It’s an early indication that iPhone upgrade rates could be improving, Woodring wrote in a research note on Tuesday.

Still, the key to Apple significantly moving the needle on revenue growth remains innovation, according to Andrew Choi, portfolio manager at Parnassus Investments, which oversees US$43 billion.

“If Apple came out with something awesome, I’m sure its results would look awesome, but that would require some kind of AI app or feature that requires a hardware update,” he said. “It’s hard to say that more of the same is exciting. And people upgrading just because their phone is old isn’t going to be the kind of thing that leads to a step change in growth.” BLOOMBERG