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The next iPhone super-cycle will be even more massive than most people expect - JPMorgan

JPMorgan is more optimistic than the rest of Wall Street when it comes to the next iPhone — but is skeptical of Apple's fastest-growing business, services.

"We're trading here because people are optimistic about this next iPhone cycle. People who look at that services business still have a lot of questions," JPMorgan analyst Rod Hall told CNBC's "Fast Money: Halftime Report" on Monday. "But when you look at the iPhone cycle, we don't think people have factored in just how strong of an iPhone cycle this is going to be."

Hall raised his price target to $165 from $142, reiterating his overweight rating on the stock. The average target price is $149.49, according to FactSet.

"We believe there's a lot of potential for momentum on that new iPhone. Now it depends on Apple delivering a good product, but we see a lot of evidence that there is a good product in the pipeline here," Hall said.

Hall said he sees the potential for three upcoming iPhones, at least some of which would feature wireless charging, glass fronts and backs, and a feature that allowed users to refocus photos after they were taken.

That would come after two years of weak replacement cycles, Hall said.

Tim Cook
Tim Cook

"This cycle has been talked about a lot but it really still us under-appreciated when you look at how the market is forecasting numbers for next year," Hall said.

Apple still makes most of its money from the iPhone. But its services segment — including Apple Music, AppleCare and Apple Pay — was the fastest-growing revenue segment last quarter, growing 18 percent year-over-year, compared to 5 percent iPhone growth.

But Hall said he's "not super optimistic" about Apple's software ambitions.

"I think that's a pretty challenging part of their business," Hall said. "We think there's a lot of potential for Apple, but so far they haven't shown themselves able to capitalize on that. That doesn't mean they won't in the future — they have got a lot of talented people there — but still a lot of challenges around that business, we think."

Tax policy, especially the rate on returning foreign earnings to U.S. soil, doesn't play too big of a role in Apple's rating, Hall said. But it is an opportunity for Apple to pay more dividends on its shares, Hall said.

"The company has an awful lot of cash offshore," Hall said. "We would see it as a positive for Apple."

Disclosure: Apple is an investment banking client of JPMorgan. JPMorgan owns a position of $1 million or more in debt securities of Apple. JPMorgan also makes a market in shares of Apple, and provides liquidity services for Apple securities.

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