William Kerwin, Morningstar analyst, joins 'Closing Bell Overtime' to talk what he is on the look-out for during Tuesday's Apple event, including the full iPhone 17 line-up.

Cupertino

Morningstar analyst William Kerwin discussed expectations for Apple's upcoming product event, where the company is anticipated to unveil the iPhone 17 lineup, including a possible new ultra-thin model called the iPhone Air. Kerwin noted that while the new form factor is noteworthy, it is unlikely to significantly alter Apple's long-term growth trajectory, as iPhone unit sales growth has been slowing over time.

Kerwin also addressed potential pricing changes, suggesting Apple may increase base model prices, possibly accompanied by higher storage, but highlighted that real costs have decreased over recent years due to inflation. He emphasized that the most significant growth driver for Apple remains its iPhone business, and that meaningful acceleration may depend on the successful rollout of AI features, which have been slower to materialize than initially promised. Kerwin suggested that Apple's vertically integrated platform positions it well for future AI advancements, and potential partnerships with third-party AI providers could enhance its offering.

Morningstar's William Kerwin on what to watch at Tuesday's Apple event

And one more thing investors will be closely watching is Apple's event, a company expected to announce new products, including iPhone 17. Joining us now to discuss is Morningstar analyst William Kerwin. William, does the 17 launch matter any more or less to investors since there's this overhang of Apple intelligence and when the AI promises actually come true from Apple? Ultimately, we don't think this is going to create a significant inflection in the stock or in our expectations for what growth looks like for Apple. Now, we're expecting the full iPhone 17 lineup to be unveiled, highlighted by potentially a new form factor in an ultra thin iPhone, which we expect to be dubbed the iPhone Air. So this new form factor is exciting, but it does not change our longer term thesis that we're observing iPhone unit sales growth slowing over time versus historical levels. We think AI is really going to be that lever that Apple needs to pull to accelerate that growth into the future. But we don't see that happening tomorrow. Do you expect Apple to mess with pricing in this tariffed environment, even if it's a stealth thing having to do with cost of storage or things like that? We think the latter may be what's happening here. We think that Apple may do away with some of those entry level storage price points. So whatever the base version may be, even if it's higher storage than last year, might be $100 more expensive. But also, I think it's important to put into context that Apple has not raised prices across the base levels of its lineup in five years. And so in real costs against inflation, these phones have gotten cheaper every year since 2020. So we think consumers won't necessarily blink too hard at a price rise of about $100 like that. And we think it would come with higher storage, as you said. I mean, I feel like every year, especially with the advent of Apple intelligence, the conversation has been now we're going to get the super cycle, the iPhone super cycle. So now I'm going to ask you, are we going to get the iPhone super cycle? We don't think so. We thought there might have been a stronger growth cycle last year with the iPhone 16 lineup. But ultimately, the best and greatest features that Apple promised over a year ago in June of 2024 with its Apple intelligence feature set still have not shipped in software. It announced software updates this prior June. And so we think this event is going to be focused on hardware, how those software updates announced a few months ago will play into this lineup. But we don't see a huge sea change in what that offering looks like announced tomorrow. So what does this mean for Apple stock, which has seen a very sizable rebound off the April lows? Well, we've seen some positive catalysts in the stock, namely the Google antitrust case, where it appears that Google's payments to Apple for being a search provider in Safari and Spotlight search, et cetera, will maintain the probable, in our view, exception that Apple will earn to tariffs in response to 600 billion dollars in cumulative investment in the U.S. So these are all great, but it doesn't change that the biggest driver of Apple really is iPhone growth. And again, we think that is slowing versus historical levels. And that leads to our conservative fair value estimate of about 210 dollars a share versus where the stock is trading today. William, I might argue that Apple's platform is the most valuable in AI because it's vertically integrated. They design the OS. They design the chip. If they were to give another third party more access to how to tune to that specifically, they could gain potentially a lot of share. So I know we talk about Apple as being a laggard, but might they also be a big revenue and profit gainer from doing the right kind of deal? I think I agree with you that they're very well positioned here from a platform standpoint. You know, we think of AI as software, but ultimately we believe that this software is going to be consumed on hardware, on devices for the foreseeable future. And Apple is really the preeminent device provider with the iPhone ecosystem and auxiliary products like the Mac and iPad. So what this means for me is that they have time to get this strategy right. It's been a bit of a protracted rollout, not as many features as they initially promised, but we think they have time to do so. And potentially partnering with a third party, whether that's Google Gemini, whether that might be Anthropic in the future, could be a way to really start to make amends in this lagged approach to AI.

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