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Can a new silicon chip power Apple’s share price?

Can a new silicon chip power Apple’s share price?

Apple’s [AAPL] share price is hovering close to its 2 September all-time high of $137.98, after closing 17 November just 13.47% off that level. Apple’s share price has made impressive gains year-to-date, rising 59% from $73.41 at the start of the year and a huge 124.62% from its 52-week low of $53.15 on 23 March. 

Apple’s latest event last Tuesday, titled ‘One More Thing’, was less flashy than some previous launches. However, while Apple’s share price slipped 0.30% on the day, the performance was actually better than it appeared, as the unveiling of the new M1 chip may have the potential to deliver significantly increased revenue for the tech giant.

 

 

 

Apple launches new M1 silicon chip

Back in June, Apple announced that “the transition to Apple silicon represents the biggest leap ever for the Mac”. At Apple’s live streaming event last Tuesday, the tech giant unveiled new versions of the MacBook Air, the 13-inch MacBook Pro, and the Mac mini, all with the M1 silicon, marking the start of Apple's two-year breakup with Intel chips. 

“The introduction of three new Macs featuring Apple’s breakthrough M1 chip represents a bold change that was years in the making, and marks a truly historic day for the Mac and for Apple,” said Apple CEO Tim Cook, who added that “M1 is by far the most powerful chip we’ve ever created”.

 

"The introduction of three new Macs featuring Apple’s breakthrough M1 chip represents a bold change that was years in the making, and marks a truly historic day for the Mac and for Apple" - Tim Cook, Apple CEO

 

JPMorgan analyst, Samik Chatterjee, outlined a number of benefits the new chip will bring for Apple’s share price, reported by Seeking Alpha. These include a “wider addressable volume opportunity with introduction of a [product] priced between the MacBook Air and MacBook Pro … faster pace of technological innovation … [and] lower [costs] across all Mac devices once the in-house chips are leveraged at scale." With potential new product sales of between 10 million and 15 million, Chatterjee forecasts “a roughly $15bn revenue opportunity for Apple”. 

Apple’s share price closed down 0.30% at $115.97 on Tuesday but, as The Street analyst Daniel Martins pointed out, this compared favourably against the wider markets, after the tech-heavy Nasdaq dropped 1.8% on the day. All in all, the potential cost savings and sheer flexibility offered by the new chip bodes well for Apple’s share price potential. 

 

New iPhone range set to offer sales boost

The iPhone 12 Pro Max and iPhone 12 mini went on global sale last Friday, and early signs are promising, with " healthy initial demand, and in particular for the iPhone 12 Pro, where demand is clearly outstripping supply", according to KeyBanc analyst John Vinhm, as reported by Seeking Alpha

Apple’s best marketing move is the launch of the iPhone mini, according to Martins, who said: “The iPhone Mini gives consumers access to 5G technology at a compelling price point [and …] could open doors in less developed, more price-sensitive markets. Pricing the new iPhone lineup too richly could have alienated a whole chunk of the market in a period of economic uncertainty.” 

With over 36% of iPhone users having not upgraded their handsets in over 3 years, “analysts are predicting an upgrade supercycle for the company, something that hasn’t happened since 2014 when Apple launched the larger iPhone 6”, according to MyWallSt. With its range of price points and as 5G infrastructure becomes more prevalent, Apple’s share price could be poised to benefit from a significant boost in sales of the iPhone 12 series. 

 

"Analysts are predicting an upgrade supercycle for the company, something that hasn’t happened since 2014 when Apple launched the larger iPhone 6" - Edward Pinkhasov, MyWallSt

 

Where next for Apple’s share price?

JPMorgan recently maintained an Overweight rating and upgraded its target on Apple’s share price from $115 to $150. Chatterjee said that Apple's valuation "is no longer an easy entry point into the shares." However, potential upside revenue and earnings drivers, as well as upcoming catalysts, "will make it difficult for investors to step away from the shares”. Chatterjee has predicted a stronger iPhone 5G volume cycle and believes Apple's valuation premium is justified due to the potential for an earnings upside.

Among the analysts tracking Apple’s share price on the Wall Street Journal, it has an average target price of $124.70, with a high target of $150.00, and a low price of $74.10. Hitting the median target would represent a 4.45% upside on 17 November’s closing price. Of the 38 analysts offering recommendations, 20 rate Apple a Buy, with four Overweight, 11 Hold, one Underweight and two Sell ratings. 

A consensus WSJ Overweight rating, coupled with some exciting new product developments, suggests Apple’s share price has room to move higher. 

 

Market cap $2.03trn
PE ratio (TTM) 36.40
EPS (TTM) 3.28
Quarterly revenue growth (YoY) 1.00%

Apple's share price vitals, Yahoo Finance, 18 November 2020

Disclaimer Past performance is not a reliable indicator of future results.

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The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

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