This Glowtime is different

Even though you swear you just got an upgrade, now is that wonderful time of year when you realize once again you’re still somehow five iPhones behind.

Apple’s annual iPhone launch event, this year dubbed “It’s Glowtime,” was held today, and all eyes were on the launch of the new iPhone 16.

Yes, you read that right: 16. The first iPhone came out in 2007, back when Superbad first premiered in theaters, the final book in the Harry Potter series was released, and the Spice Girls went on their 10-year reunion tour.

The event included the reveal of a host of new features for various Apple products—including a new, more affordable AirPod, plus health and safety updates to Apple Watches. But the real highlight for investors is the iPhone, which made up 58% of Apple’s total revenue in the first quarter of this year. Apple announced:

• The new iPhone 16 will cost $799, while the Plus will cost $899. The Pro version will run for $999, with the Pro Plus retailing for $1,999. Adjusted for inflation, these are relatively lower price increases from the prior newest iPhones.
• It’s 0.2 inches bigger than previous models, will come in new colors, and has a more advanced camera.
• New AI features include a more advanced and conversational Siri, and texting tools that will help draft messages.

Despite the undeniable charisma of Apple’s awkward employee presentations, AAPL stock tends to underperform the day of the new iPhone model, leading analysts to dub it a “sell the news” event. But despite historically dropping slightly the day of, Apple shares tend to outperform in the months following the event by an average of 3 basis points, according to Morgan Stanley research.

It’s the AiPhone now

But analysts argued that this year could defy the usual trend, given investor excitement about Apple’s integration of generative AI into the iPhone. 

“For the first time since the iPhone was launched 17 years ago, the key feature we expect to drive iPhone upgrades this cycle – Apple Intelligence – is software-related,” wrote Morgan Stanley analyst Erik W Woodring in a note about the event, in which he gave the stock an “overweight” rating and a price target of $273.

Bank of America analyst Wamsi Mohan concurred, explaining, “If Apple surprises with a compelling demo of Apple Intelligence/third party integrations or with any price increases, we could see the stock fare better than post past events.” He reiterated his “buy” rating and $256 price target.

What’s the big deal? AI features will not only make the new iPhone more compelling to consumers, but will drive what Wedbush’s Dan Ives noted will be Apple’s “biggest upgrade cycle in history.” In other words, thanks to its new features, iPhone users with old models will have to upgrade to use the phone’s full capabilities, driving sales higher. “We estimate that roughly 20% of consumers worldwide will ultimately access and interact with generative AI apps through the Apple ecosystem over the coming years,” Ives wrote in a note, in which he reiterated his “outperform” rating and a $220 price target.

Even if Apple’s announcements today failed to spark a rally, that’s OK—the gains from the iPhone will pan out over the next few weeks and months.—LB