Apple’s rally pressures new CEO to deliver on foldable iPhone

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Photo by Ying Tang/NurPhoto via Getty ImagesApple Inc.’s US$570 billion summer surge is saddling new chief executive John Ternus with high expectations heading into the company’s most anticipated event in years: the unveiling of the foldable iPhone on Wednesday.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountThe stock has rallied 15 per cent since June 25, when the company announced it was raising prices on many of its products, sending the shares to their worst day in more than a year. Since then, a significant chunk of the gains have been driven by excitement about the new lineup of devices, particularly the foldable phone. However, the stock remains down about seven per cent from its all-time high set on July 28.Apple is still considered an AI laggard, a long-term fundamental issue for investors. But in the immediate future, the stock’s fortunes will likely hinge on the reception of the new iPhones, the company’s ability to navigate soaring memory costs and the performance of Ternus, who took over from former CEO Tim Cook on Sept. 1.Breaking business news, incisive views, must-reads and market signals. Weekdays by 9 a.m.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Posthaste will soon be in your inbox.We encountered an issue signing you up. Please try againThe Apple product launch is scheduled to kick off at 10:00 a.m. Pacific time at Apple’s headquarters in Cupertino, California.“These events are important every year, but this one has an even greater level of importance,” said Jed Ellerbroek, portfolio manager at Argent Capital Management, which owns Apple shares. “We are embarking on what I think many hope and expect to be a pretty darn good sales cycle here. They need to deliver on that.”Apple’s revenue is expected to rise 15 per cent in fiscal 2026, which ends in September. That would be the fastest pace of growth since 2021, when stay-at-home measures during the pandemic sent device sales soaring.The stock has also benefited from the company’s reputation as a haven from heavy AI spending, which is weighing on Big Tech peers like Alphabet Inc. and Microsoft Corp. that have committed hundreds of billions of dollars to develop the technology. In a year when Wall Street is growing increasingly uneasy about when those capital expenditures will pay off in a big way, Apple is the second-best performer among the Magnificent Seven tech giants.The problem, however, is Apple investors are famously hard to impress on the day of iPhone events. The stock has fallen on five of the past eight days when new versions of the devices were unveiled. The good news? It averages a gain of 10 per cent in the six months following iPhone debuts, according to data compiled by Bloomberg going back to 2007.The foldable iPhone is projected to have a starting price of US$2,300 to US$2,500, according to Morgan Stanley analysts led by Erik Woodring. They estimate shipments will total about 6.5 million units in Apple’s fiscal first quarter, which ends in December, translating into sales of roughly US$14 billion, or about 16 per cent of total iPhone revenue expected in the quarter.Beyond the foldable iPhone, Apple also is expected to unveil new iPhone Pro and Pro Max models, AirPods and watches. The big question will be whether the company can raise prices to keep up with soaring memory costs and maintain profit margins without scaring off customers.“Pricing remains the key unknown, and in our view, the variable most likely to drive the reaction in shares,” JPMorgan analyst Samik Chatterjee wrote in note to clients last week. “Investors are looking for price increases that will help the company find the right balance between limiting price elasticity impact on volumes and limiting further moderation of gross margins.”This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.Apple’s ability to protect profitability is critical for a stock that has grown increasingly expensive. At 33 times earnings expected over the next 12 months, the shares are well above their 10-year average multiple of 23, not far from the highest level in nearly two decades, and among the 60 most pricey members of the S&P 500, according to data compiled by Bloomberg. Its valuation is well above the S&P 500 at 19 times forward earnings and the tech-heavy Nasdaq 100 Index at 21 times.“It’s not cheap, but I do think there’s long-term value in the shares,” said Gerald Sparrow, chief investment officer of the Sparrow Growth Fund, which owns Apple shares. “Investors want to see growth.”What’s more, the pace of earnings growth is slowing. After consecutive quarters of double-digit percentage increases, Apple’s net income expansion is expected to slow to just six per cent in its fiscal fourth quarter, which ends Sept. 30, and one per cent in its fiscal first quarter, according to the average of analyst estimates compiled by Bloomberg.The one major area Apple investors are concerned about that isn’t expected to get much attention on Wednesday is artificial intelligence. While the company has been rewarded for not following rivals like Microsoft in spending heavily on AI, its reliance on partnerships like the one it has with Google raises other concerns that will start to matter before long, according to Argent’s Ellerbroek.“I want more from them in terms of their own capabilities,” he said. “I respect the company so much, I think their competitive position is so great, but there are some under the surface, not in the financials signs that all is not perfectly well at Apple right now.”—With assistance from Subrat Patnaik and David Watkins.We apologize, but this video has failed to load.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.