Preliminary information suggests that Apples (NASDAQ: AAPL ) The latest batch of smartphones saw weaker demand than last year’s models. Those reports seem to hold no water after all, as the company’s iPhone 16 lineup is receiving a solid response from customers.
More importantly, a closer look at the potential sales of the latest iPhone models indicates that Apple could see an improvement in sales.
A bigger upgrade cycle will help Apple sell more iPhones
Counterpoint Research estimates strong demand for iPhone 16 models in India, with sales reportedly up 15% to 20% on the day the smartphones went on sale in the country. Notably, Apple’s sales in India rose an impressive 35% in fiscal 2024 (which ended in March this year), and the strong start the company’s latest devices are enjoying in the market suggests the momentum will continue.
Meanwhile, T-Mobile CEO Mike Sievert also pointed out that the carrier is selling more iPhone 16 models this year than last year. While Sievert pointed out that the delayed launch of Apple Intelligence could lead to a longer purchase cycle, the iPhone maker could ultimately enjoy stronger sales due to its older installed base of iPhones.
Dan Ives of Wedbush Securities estimates that of the 1.5 billion iPhones installed, 300 million haven’t been upgraded in four years. So, with Creative Artificial Intelligence (AI) With features set to make their way to the latest Apple iPhones, there’s a good chance that a significant portion of these older iPhones will be upgraded. With Apple selling just under 235 million iPhones last year, the stage is set for big improvements in the company’s shipments going forward.
That’s why investors may want to buy shares of Apple, a tech giant Growth will improve Thanks to the advent of AI-enabled smartphones. However, there is another stock that stands to benefit more from the potential success of the iPhone 16, and investors can buy the company at a cheap valuation right now — Taiwan Semiconductor Manufacturing (NYSE: TSM ).
A shot in the arm for TSMC thanks to the new iPhones
Taiwan Semiconductor Manufacturing Company, popularly known as TSMC, is the company that manufactures the processors that power Apple’s iPhones. The A18 and A18 Pro processors in the iPhone 16 models are manufactured using TSMC’s 3-nanometer (nm) process die.
Apple claims its iPhone Pro models can deliver 15% performance gains while using 20% less power than last year’s models. Meanwhile, the A18 chip found in the iPhone 16 and iPhone 16 Plus is 30% faster and consumes 35% less power than last year’s phones. Improved processing power and lower consumption will play a key role in enabling the new iPhones to enable the Apple Intelligence suite of AI features and help the company achieve a fast-growing niche.
Apple reportedly started manufacturing its latest iPhones in June this year and ramped up production before they hit the market this month. This is one of the reasons TSMC has seen significant growth in revenue of late. The Taiwan-based foundry’s monthly revenue rose 33% year-on-year in June, followed by 45% in July and 33% in August.
Apple is TSMC’s largest customer and is said to be the fourth in the latter’s top line by 2023. So it’s easy to see why TSMC’s earnings have been growing impressively of late. Of course, Nvidia Another key customer is TSMC, as the semiconductor giant taps the latter to make its AI chips. However, Nvidia reportedly accounted for 11% of TSMC’s revenue last year, which means Apple moves the needle in a more significant way for the foundry company.
Production of iPhone 16 models is expected to reach 90 million units in 2024, which is 8 million to 10 million units higher than last year’s models. This estimated production increase by Apple appears to be contributing to TSMC’s impressive growth in recent months. More importantly, we’ve seen before that there’s a large installed user base that could move to Apple’s AI-enabled iPhones in the future. As a result, TSMC’s largest customer can continue to play a key role in driving its growth.
Even better, reports suggest that Apple may have already purchased all of TSMC’s manufacturing capacity for 2-nm chips for its 2025 iPhone lineup. Notably, Apple has done a similar thing in the past when it bought all of TSMC’s 3nm manufacturing capacity for a year until 2023 so that it can build enough iPhones.
Overall, TSMC’s growth opportunities in the AI chip market for customers like Nvidia, and its tight relationship with Apple are the reasons for a significant increase in the company’s revenue estimates over the next three years.
What’s more, DSMC now trades at 31 times earnings and 21 times forward earnings. That’s cheaper than Apple, which trades at 34 times trailing earnings and 30 times forward earnings. Thus, TSMC stock offers investors a cheap and versatile way to take advantage of potential growth in iPhone sales and the secular growth of the AI chip market.
This is why investors should consider buying this semiconductor stock now, following the 75% gains already in 2024.
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Harsh Chauhan No position in any of the shares mentioned. The Motley Fool owns and recommends positions in Apple, Nvidia and Taiwanese semiconductor manufacturing. The Motley Fool recommends T-Mobile US. A motley fool Disclosure Policy.
Prediction: Apple’s iPhone 16 Could Be a Runaway Hit, Here’s 1 Stock to Buy Fist Before It Happens Originally Posted by The Motley Fool
2024-09-28 21:15:00