Apple Inc Stock: Short Interest Surges On IPhone Supercycle Doubts

Bears are betting heavily against Apple Inc (NASDAQ:AAPL) stock.

Apple Inc Stock Short Interest Surges On iPhone Supercycle Doubts

Shares of Apple Inc (NASDAQ:AAPL) have rallied massively on the hopes of an iPhone supercycle this year when the Cupertino-based tech giant launches its 10th-anniversary model of the iPhone. Many analysts have based their bullish calls on this expected iPhone Super Cycle. Wall Street's consensus price target on Apple stock has jumped up from $132.53 in January to $156.56 currently.

There are many reasons why analysts are expecting an iPhone supercycle this year. iPhone is up for a major refresh. The iPhone 7 represented a modest update to the 6S, its predecessor. iPhone 7 added water resistance, an improved camera, battery life and better processor while retaining similar styling. Many analysts believe that Apple may have kept the best part of the updates for its 10th-anniversary launch.

For months now, we have been treated to multiple leaks of iPhone 8, detailing the various features the next iPhone model is likely to have. The next iPhone is expected to have a composite glass body instead of the existing aluminum unibody. The leaks also suggest that the next iPhone, will have wireless charging and come with plastic OLED screen. This Forbes post lists down 15 such features which the next iPhone will reportedly have. Better features and styling is likely to induce more customers to upgrade to the newer iPhone.

Also, not many iPhone users upgraded to iPhone 7 last year. During the Q1 conference call, Apple CEO Tim Cook had said that existing iPhone users upgraded to the latest iPhone 7 models at about the same rate as the iPhone 6S a year earlier. According to analysts, iPhone users may have delayed upgrading to the newer version in anticipation of a more significant upgrade in the 10th-anniversary addition. And going by the leaks, they will not be disappointed. But will the new features lead to an iPhone supercycle on par with 2014 launch of the iPhone 6?

Why iPhone supercycle may not be a sure thing.

A recent survey conducted by Branding Brand doesn't paint a very optimistic picture. Far lesser number of existing iPhone users are considering to upgrade to the latest model this year than last year. As reported by eMarketer, the Branding Brand survey found that about 53% of iPhone users will trade in their iPhones for another iPhone. 45% of the current iPhone users said they don't want to trade in their iPhones this year, while 2% of the users plan to shift to Android devices. However, only 26% of the current users plan to upgrade to the upcoming iPhone 8. Last year, the same survey had found that nearly 51% of the existing iPhone users were planning to upgrade to iPhone 7.

There are several reasons why existing iPhone users may not be willing to trade in their current iPhones for the upcoming model like they did during the launch of the iPhone 6. The 2014 iPhone supercycle was driven by the pent-up demand for a larger-screen iPhone, which no longer exists. Also, users are holding on to their iPhones for a longer period than they did back then. Pricing could be another concern. Analysts are expecting iPhone 8 to retail around $1000. In a survey conducted at the time of the first iPhone launch, customers had indicated high price as the most likely reason why they were not planning to buy iPhone. There are several analysts who are sounding a note of caution about the iPhone supercycle right now. Pacific Crest analyst Andy Hargreaves recently downgraded Apple stock stating, " in addition to a likely lack of pent-up demand among Android owners, the base of first-time smartphone buyers that is willing to spend over $800 for a phone is now likely near zero, a contrast from the iPhone 6 cycle". Many users will still upgrade to the upcoming iPhone model, but the numbers may not meet investors' expectations.

Shorts are betting for a smaller iPhone upgrade cycle.

Many investors are expecting the iPhone supercycle to be of a much lower magnitude than what is currently priced in the stock. The rising doubts about the iPhone supercycle combined with the recent rally in Apple stock has driven short interest in Apple stock to record highs. According to S3 Partners, short interest in Apple stock had surged past $9 billion towards the end of May for the first time since last May. Apple Inc is now the third most-shorted company in the world, trailing only Tesla and Alibaba.

If you're looking for fundamentally strong tech stocks, check out Amigobulls' top stock picks, which have beaten the NASDAQ by 130%. We also have our picks from the auto sector, which have beaten the S&P 500 by nearly 195%. And, if you are a technician looking for technical trading ideas, check out our daily trading ideas section.

Kumar Abhishek Kumar Abhishek   on Amigobulls :

Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice.

Buying and selling of securities carries the risk of monetary losses.Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

show more

Comments on this article and AAPL stock

Do share this awesome post