“We realize we have more work to do on the subject.” — Analyst Chris Caso
From a note to Raymond James clients that landed on my desktop Thursday:
Shorter-term, we feel very good into the quarter… For the rest of the year however, we think AAPL’s stock performance will depend on the “one more thing” – the new AR/VR product that by now has been widely rumored. Our upgrade of AAPL in July 2019 was based on the 5G upgrade cycle ahead, and that was the right call. And although COVID has been somewhat of a unit headwind due to production issues, now that we’re in the second year of that cycle and with the stock up 244% since July 2019, more is needed to keep the stock moving.
We’re in the camp that AR/VR could be that catalyst that continues to move AAPL higher. We think Meta’s Oculus 2 is a fantastic demonstration product that shows the capabilities of VR, from content consumption to gaming to Metaverse applications. We think Oculus however suffers from two limitations – an unwieldy form factor, and a lack of developer support, which has led to a lack of content. A product from AAPL would likely solve the first, and unquestionably solve the second.
Our hesitation is that we’re not yet convinced the VR headset will be coming this year. Our supply chain checks did pick up an AAPL VR headset on production forecasts for 4Q22, but unit volume was small (just a few million units) and we didn’t hear high conviction that the forecast would hold. We think a VR product from Apple would likely sell in the tens of millions of units annually, and that early adopters would support that, even if it started at a high price point. So we were puzzled by the low unit forecasts, and we realize we have more work to do on the subject.
But given the solid short-term setup for iPhone, a new iPhone form factor of course in the fall, and the promise of AR (albeit with a lot of unanswered questions), that leads us to conclude that we can remain constructive on AAPL’s stock.
Maintains Outperform rating and $185 price target.
My take: First time I’ve heard someone claiming to have unit volume production numbers.