AAPL is overvalued (fair value $210 vs price $316) despite foldable iPhone innovation; maintain hold rating.

We got huge news for Apple stock investors on Wednesday as the company announced its first ever foldable iPhone and it'll go to market at less than $2,000 a piece, a price point I was curious if they were going to be able to hit.

So, this is big news for Apple stock investors. I had two big questions surrounding this launch, this event, this product that I wanted to discuss here and update my buy, hold or sell rating for Apple stock and reveal my fair value estimate for Apple as well.

So, Apple marking the largest overhaul of its smartphone design ever is creating a new opportunity called the iPhone Duo starting at $2,000.

It was an incredible product. I watched the section of the presentation that included the release of the iPhone Duo and it's a pretty impressive product. It's going to create a lot of demand from customers.

Not sure how many customers will be able to afford this product or if there's going to be incentives and programs to make it more affordable, monthly payments, lease payments, etc. There wasn't too many details regarding those programs in that section of the event that I watched.

But my bigger question first of all for Apple would be how many units can you provide the market for the upcoming holiday period? I've heard some estimates around 6 million. I've heard some estimates as high as 10 million units.

Will that be enough? Will the product be sold out? Will customers be able to get these products on time before the holiday season? Before Christmas is when a lot of people purchase these kinds of Apple products.

Given all of the supply chain shortages we've heard about, right? Soaring memory prices, soaring storage prices, will Apple be able to secure enough supply to produce this product at scale for the upcoming holiday period, or will this be more of like a soft launch where it'll only be very limited amounts available?

it'll sell out relatively quickly and consumers will have to wait for several months before they'll really be able to buy this product when they want it at the price point they want it etc etc. So that's my first big question is this product going to be really available for this upcoming holiday season?

The second big question is will there be consumer demand for this product? how many consumers will be able to afford this product at the $2,000 price point and be willing to purchase at this price point.

So given that kind of economy we're in, I'm curious to see from Apple if there is demand, how much demand there is for a foldable phone at the $2,000 price point. This is more than double the entry-level price point of Apple's uh flagship iPhone that starts at around $700 a piece.

So, of course, this isn't the first foldable phone in the market. Samsung and Google have had foldable phones in the market for many years now and uh a couple of manufacturers in China have had foldable phones and overall the foldable phone category has been increasing quickly.

There's a lot of demand for foldable phones from consumers outside of Apple and so there is uh considerable there is reasonable expectations that this will be a very successful product for Apple.

But does it make Apple stock a buying opportunity is another question. As it stands today according to my estimates I think Apple stock is overvalued. I calculated a fair value of $210.

The market price is $ 316. So, I see a considerable overvaluation here for Apple stock.

Now, this could be because I'm underestimating the impact that this foldable iPhone will have. I might be underestimating how much cash flow I expect this will generate. Just to put it into context, I'm estimating Apple generates $144 billion in free cash flow in fiscal year that ends in 2026.

And that increases to an estimated $29 billion in free cash flow in its fiscal year that ends in 2030. So, those are my estimates for growth for Apple's free cash flow between now and 2030.

I could be underestimating that growth. It could be that this iPhone will generate significant upgrades from its existing ecosystem, its existing holders of iPhone. And it could be that the increase in the average selling price plus the increase in the number of units sold because of the number of people that will be upgrading will be so massive that the cash flow will be much larger than what I'm estimating.

And that's a reasonable risk here. And I understand that's a risk to my model here because this has really been the first big upgrade to the iPhone since I want to say the iPhone 6, the iPhone 6 Plus.

If you remember, that was the first time where Apple really increased the size of the screen of the iPhone and that created a big burst in upgrades from existing iPhone buyers.

So, since the launch, the 6 was the big update. And since the iPhone 6 Plus, it's been very incremental updates to the iPhone, right? The battery gets a little bit better every year.

The camera gets a little bit better every year. The processor gets a little bit better every year. And that's been the extent of the innovation coming out of Apple for the better part of more than a decade on the iPhone.

Just incremental improvements every year. This foldable iPhone is a step upgrade. It's a big step, a big innovation from what they've been delivering to consumers for more than a decade, since the initial launch.

I would argue this is the biggest innovation coming out of Apple since the initial launch of the iPhone. And so, it's uh reasonable to assume that maybe it could have a much bigger impact to the cash flow than I'm estimating.

So, if that's to be the case, and I will be monitoring this very closely, uh, soon as I get more information from Apple regarding how many units they're selling, what their costs are for these, um, what the profit margins are, what the impact it's having on the overall Apple ecosystem, and I will update my models as quickly as possible if I start to see the incoming information is much different than what I'm estimating.

But for now, it doesn't yet look like a buying opportunity, but a a great event for Apple stock investors. Certainly great news for Apple stock investors to be sure. But I will be reiterating my hold rating on Apple stock following this event.