Apple Inc

Analyst thesis

Our recommendation is based on:

• An ecosystem that retains customer loyalty and usage: Apple has built a deeply interconnected ecosystem in which devices and services compound switching costs over time. This creates behavioural lock-in, supporting above-industry replacement rates, strengthening hardware retention and supporting growth in services monetisation.

• A software business hiding inside a hardware company: Apple's services division, comprising the App Store, iCloud storage and Apple Pay, generates ~$31 billion in revenue per quarter, accounting for approximately 28% of total revenue, while contributing around 43% of total gross profit. This reflects a higher gross margin of 76.7% compared with 38.7% for hardware products. As services revenue continues to outpace hardware revenue, its contribution to gross profit is expected to increase further, providing a structural margin tailwind that is less dependent on higher device sales or cost efficiencies.

• A product cycle that could drive the next wave of upgrades: The September 2026 iPhone 18 launch presents a near-term catalyst, with expectations that a foldable device priced from ~$2 400 could support both average selling price (ASP) expansion and unit growth by attracting users who skipped the iPhone 16 and 17 upgrade cycles.

• Artificial intelligence (AI) upgrades that shift sentiment: Apple Intelligence, Apple’s AI-powered upgrade to Siri developed in partnership with Google's Gemini, enables Apple to deliver a smarter, more capable virtual assistant. Successful execution could shift market perception from Apple being viewed as a laggard in AI to a leader, providing a potential tailwind for the share price.