Apple: We Expect New Models and New Chip to Spur Return to iPad Growth

Key Morningstar Metrics for Apple Stock

• Fair Value Estimate: $170.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

We maintain our fair value estimate of $170 for Apple AAPL stock, as our forecast is unchanged following the release of updated iPad models. We’d been anticipating new models this spring, and the upgrades matched our general expectations for performance improvement. We were impressed by Apple’s newest chip, the M4, which will slot into the iPad Pro. We maintain that these updated models will spur new refreshes and end three years of iPad revenue declines. We project year-over-year and sequential iPad growth over the next three quarters. We see Apple stock as fairly valued.

Apple unveiled upgraded iPad Pro and iPad Air models for the first time in 18 months, which is longer than the product’s typical upgrade cadence. The iPad Pro remains Apple’s marquee tablet, and the firm touted its size and performance, saying it is significantly thinner and 4 times faster than the previous Pro model. This performance is largely attributed to the brand-new M4 chip, the company’s most advanced. Apple highlighted the chip’s graphics processing unit and neural engine as the firm staves off worries over its lack of announcements regarding generative artificial intelligence.

Apple also highlighted updated apps for film and music editing that make increasing use of AI features. The Pro touts a brand-new screen, the Ultra Retina XDR, which uses two OLED panels. We were also impressed by the new Apple Pencil Pro, an upgraded version of its existing Pencil with added sensors and functionality.

Apple’s lower-priced Air model also got upgrades, including a new size and better performance. For the first time, the iPad Air will offer a 13-inch screen size, which matches what’s available with the Pro model. The Air will also now use Apple’s M2 chip, which offers lower performance than the Pro model’s M4 but is a big leap from prior-generation Air models, which used the M1.