Leading bank sees 13% upside as Apple raises the stakes on premium iPhones

Goldman Sachs maintains a 'buy' rating on Apple with a $266 price target, implying 13.5% upside, following the company's latest product showcase. The firm highlights Apple's strategy of subtly increasing iPhone average selling prices through higher base storage and premium options, while maintaining the entry-level price, projecting revenue to reach $480 billion by 2027 and EPS to $9.04. Services are expected to be the primary profit growth driver, marking an "inflexion point" for the investment thesis and bolstering the ecosystem's resilience despite potential risks from lengthening upgrade cycles and regulatory pressures.

Analysis

Goldman Sachs has reiterated its 'buy' rating on Apple Inc. with a $266 price target, indicating a 13.5% potential upside from its current price of $234.35. The bank's positive outlook is underpinned by Apple's latest product refresh, which employs a subtle but effective premiumization strategy. By eliminating the 128 GB storage tier for its iPhone 17 Pro and Air models, Apple has effectively raised the entry-level price by $100 for these premium devices, a move expected to boost average selling prices (ASPs). Concurrently, maintaining the base iPhone 17 price at $799 is a strategic decision aimed at sustaining growth in the company's installed user base. This hardware strategy, supported by strong carrier trade-in credits of up to $1,100, is projected to drive revenue from $391 billion in FY24 to $480 billion by FY27, with EPS forecasted to climb from $6.75 to $9.04. Crucially, Goldman identifies an "inflexion point" in Apple's investment case, with high-margin services expected to contribute the majority of future profit growth, transitioning the company towards a more resilient recurring-revenue model. While risks such as lengthening upgrade cycles, potential consumer softness, and regulatory scrutiny persist, the analysis suggests Apple's vast and sticky ecosystem of over one billion active iPhones provides significant resilience and revenue visibility.

Key Decisions for Investors

• Investors should assess Apple's valuation in the context of its transition to a services-led profit model, as this 'inflexion point' could justify a sustained premium multiple compared to pure-play hardware peers.
• Monitor the market's reception to the new pricing structure, particularly tracking ASPs and unit sales data to validate the effectiveness of the premiumization strategy and the impact of carrier promotions on consumer demand.
• Maintain vigilance over key identified risks, including regulatory developments concerning the App Store, macroeconomic indicators affecting consumer spending, and any geopolitical events that could disrupt the company's concentrated supply chain in China.