Apple Intelligence will drive an upgrade cycle, but it won't happen until it's released: Gil Luria

Apple setting a record close today, a research firm counterpoint out with new numbers claiming the latest iPhone models are seeing strong demand in China with sales of 20% in the first three weeks versus last year's launch. That follows a number of bullish calls from analysts this week, but our next guest says any individual report on iPhone demand should be taken with a grain of salt. Joining us now is D.A. Davidson, Managing Director Gil Luria. Gil, happy Friday. So a few weeks back, I look back at past iPhone super cycles and which sorts of features or conditions were consistent with them. Let's see, network and AI features, which iPhone 16 seems to have. Screen and camera quality improvements that are significant. It's got bigger screen, better cameras. But global expansion, to me, seemed to be missing in the sense that Apple Intelligence won't show up in China and some other markets until sometime later. It's English only. So do you think this report is legit from counterpoint? How much does it matter if out of the gate, China's sales are strong? As you pointed out, I think any individual data point should be taken with a grain of salt. It's like saying how big an elephant is based on weighing a couple of hairs that fell off its back. In fact, a very similar report was out a couple of quarters ago indicating Apple was down double digits in China and Apple ended up reporting up 5% in China. So these types of reports are often not even directionally correct. They have to be viewed in the context of all the information we're collecting in the marketplace from various checks, from their suppliers, from Apple suppliers that have reported contradictory data points as well. Which is all to say, in the December quarter, we don't expect significant growth for iPhone because to your point, Apple Intelligence has yet to be introduced. Apple Intelligence will drive an upgrade cycle. It just won't happen until those features are actually released to the market. It's also unclear, Gil, how much data and even color we're gonna get on new iPhone sales when we get Apple's earnings at the end of this month, right? Our producer, David Gernon, looked back at some transcripts from previous fiscal Q4 reports and maybe they'll talk about how long before they get into supply-demand balance. So you get some sense of what's driving the lack of supply, whether it's big demand or less supply, but that doesn't necessarily tell us regionally how strong the iPhone is. That's right. So when they report on October 31st, we may get some indications if there's supply issues, if there's a particular trend that Apple wants to highlight, but we're not gonna really know what holiday sales are, which is the key selling season, until they report three months later. So all these reports about individual countries, individual markets, individual channel checks can only be seen in the whole and have very limited predictability. And to your point, we may not even have them confirmed on that October 31st report. So does this mean that Apple's valuation has gotten ahead of itself or do you still buy at these levels? So Apple is up 20% since Worldwide Developer Conference. I think that understanding now is that the iPhone will have an upgrade cycle. I resist the term super cycle because super cycle was iPhone 12 when we introduced 5G and iPhone sales grew 40%. That's not what we're talking about here. We're talking about the fact that of the last four upgrade cycles, this should be the most meaningful one after three flat cycles. So again, maybe 10% growth, which is enough to justify the Apple stock going up this much, but now Apple's trading at 35 times forward earnings. That's on the high end of historical range.