Initial reports indicate that apple‘s (Nasdaq: Apple) The latest batch of smartphones has seen weaker demand than last year’s models which has weighed on the stock recently. But it looks like these reports may not hold much water after all, as the company’s iPhone 16 lineup seems to be receiving a strong response from customers.
More importantly, a closer look at the potential sales prospects for the latest iPhone models suggests that Apple could see a nice sales bump in the future.
A big upgrade cycle could help Apple sell more iPhones
Counterpoint Research estimates that iPhone 16 models are seeing strong demand in India, with sales reportedly jumping 15% to 20% on the day the smartphones went on sale in that country. It is worth noting that Apple’s sales in India rose by a staggering 35% in fiscal year 2024 (which ended in March of this year), and the strong start enjoyed by the company’s latest devices in that market indicates that the momentum is set to continue.
Meanwhile, T-Mobile CEO Mike Seifert also noted that the carrier is selling more iPhone 16 models this year than last year. Although Seifert noted that a delay in rolling out Apple Intelligence could lead to a longer buying cycle, it’s worth noting that the iPhone maker could ultimately enjoy strong sales due to an older installed base of iPhones.
Dan Ives of Wedbush Securities estimates that out of an installed base of 1.5 billion iPhones, 300 million haven’t been upgraded in four years. So, with Generative Artificial Intelligence (AI) Features are set to make their way into Apple’s latest iPhones, and there’s a good chance a good portion of these older iPhones will be upgraded. Considering that Apple sold just under 235 million iPhones last year, the stage appears to be set for a big jump in the company’s shipments in the future.
This is why investors may want to buy Apple shares, considering the tech giant’s shares Growth is set to improve This is thanks to the arrival of its smartphones powered by artificial intelligence. However, there’s another stock that’s set to benefit greatly from the potential success of the iPhone 16, and investors could buy that company at a cheaper valuation right now. Taiwan Semiconductor Manufacturing Co., Ltd (NYSE: TSM).
A shot in the arm for TSMC thanks to the new iPhones
Taiwan Semiconductor Manufacturing Company, known as TSMC, is the company that makes the processors that power Apple’s iPhones. The A18 and A18 Pro processors in the iPhone 16 models are manufactured using TSMC’s 3nm process node.
Apple claims that its iPhone Pro models can deliver 15% performance gains while consuming 20% less power than last year’s models. Meanwhile, the A18 chip in the iPhone 16 and iPhone 16 Plus is said to be 30% faster and consumes 35% less power than last year’s phones. Improved processing power and lower consumption will play a key role in helping the new iPhones power Apple’s suite of AI features and help the company capitalize on a rapidly growing niche.
Apple reportedly started manufacturing its latest iPhones in June this year and later ramped up production before they hit the market this month. This is one of the reasons why TSMC has seen its revenues surge recently. The Taiwan-based foundry giant’s monthly revenue rose 33% year-on-year in June, followed by a 45% increase in July and a 33% increase in August.
Apple is TSMC’s largest client and is said to have accounted for a quarter of the latter’s total revenue in 2023. So it’s easy to see why TSMC’s revenue has been growing at impressive levels recently. naturally, Nvidia It is another major client of TSMC, as the semiconductor giant has been tapping the latter’s foundries to manufacture its own AI chips. However, Nvidia reportedly accounted for 11% of TSMC’s revenue last year, meaning Apple is moving the needle in a more significant way for the foundry giant.
Ives expects production of iPhone 16 models to reach 90 million units in 2024, an increase of 8 to 10 million units over last year’s models. This estimated increase in Apple’s production appears to be contributing to TSMC’s impressive growth in recent months. More importantly, we’ve seen previously that there is a huge user base who could move to Apple’s AI-enabled iPhones in the future. As a result, TSMC’s largest customers can continue to play a central role in driving its growth.
Better yet, reports indicate that Apple may have already purchased all of TSMC’s manufacturing capacity for 2nm chips for the 2025 iPhone lineup. It’s worth noting that Apple did something similar in the past when it bought all of TSMC’s 3nm manufacturing capacity for a year In 2023 to be able to produce enough iPhones.
Overall, TSMC’s growth prospects in the AI chipset market thanks to clients like Nvidia, along with its close relationship with Apple, are the reasons behind a significant increase in the company’s revenue estimates for the next three years.
Furthermore, TSMC is trading at 31 times trailing earnings and 21 times forward earnings at the moment. It’s cheaper than Apple, which trades at 34 times trailing earnings and 30 times forward earnings. Therefore, TSMC stock gives investors a cheaper and more diversified way to capitalize on potential growth in iPhone sales, as well as the long-term growth of the AI chip market.
That’s why investors should consider buying this semiconductor stock now before it can rally beyond the 75% gains it has already posted in 2024.
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Harsh Chauhan He has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends T-Mobile US. The Motley Fool has Disclosure policy.
Prediction: Apple’s iPhone 16 could be a massive success, and here’s one stock to buy before that happens Originally published by The Motley Fool