When it comes to investing, it’s crucial to not only look at the current state of a company but also to consider its long-term potential. This is especially true for tech giant Apple, as investors may be underestimating the company’s gross profit margins according to Bank of America.
Analyst Wamsi Mohan from Bank of America believes that the Street is not fully appreciating the long-term gross margin potential for Apple. In a recent note, Mohan pointed out that there could be significant upside for both Product and Services gross margins in the next few years. This is not the first time that the market has underestimated Apple’s gross margins— in 2018, Wall Street projected 39% gross margins for 2023, but Apple actually reported 44% gross margins last year.
Despite facing challenges such as slowing iPhone sales and the incorporation of artificial intelligence into its products and services, Apple still has the potential for significant growth in its gross margins. Mohan estimates that factors such as vertical integration, product mix, and utilizing its own internal modems could all contribute to increased gross margins for the company. Additionally, the shift towards Services as a higher margin business and the potential for pricing adjustments could further enhance Apple’s gross margins.
Other analysts, such as Samik Chatterjee from JPMorgan, also view Apple as undervalued by investors. The recent launch of the 5G phone and the potential impact of artificial intelligence on the next iPhone upgrade cycle have started to generate interest among investors. Despite concerns about Apple’s growth outlook, the company’s valuation premium is currently at the lower end of its range, making it an attractive opportunity for investors.
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