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Analysts are blown away by Apple's wearables business — it's growing at an astounding 50% clip

Key Points
  • Apple's strong fourth-quarter earnings were driven in part by "huge AirPod growth," Bernstein's Toni Sacconaghi said.
  • "A second quarter in a row of 50%+ [year over year] growth and the fact that Apple is beating AirPods forecasts weekly suggests strong double-digit growth is sustainable," Morgan Stanley analyst Katy Huberty said.
  • Apple's wearables performance showed "positive trends for new products," Barclays analyst Tim Long said, giving hope for innovation in Apple's hardware line finding new profits.
Focus on Apple wearables and services beats, CFRA analyst says
VIDEO4:5204:52
Focus on Apple wearables and services beats, CFRA analyst says

Apple turned in stronger-than-expected fiscal fourth-quarter results but a second consecutive quarter of strong growth for wearables impressed analysts, who are looking for the tech giant to innovate beyond the iPhone.

"Wearables continue to lead growth. Many investors attributed 50% wearables growth in the June quarter to shorter lead times as demand caught up with supply, however a second quarter in a row of 50%+ [year over year] growth and the fact that Apple is beating AirPods forecasts weekly suggests strong double-digit growth is sustainable," Morgan Stanley analyst Katy Huberty wrote in a note to investors.

Morgan Stanley has an overweight rating on Apple's stock with a $296 price target.

Apple shares rose 2.3% in trading Thursday to close at $248.76 a share, after the company reported solid fourth-quarter earnings and predicted strong iPhone sales. But "huge AirPod growth" helped drive Apple's earnings, Bernstein's Toni Sacconaghi said.

Redpoint Ventures' Geoff Yang on the state of Big Tech
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Redpoint Ventures' Geoff Yang on the state of Big Tech

And Huberty thinks Apple's wearables unit has room to run, as she believes there are many iPhone owners who don't yet have an Apple Watch or AirPods. Her firm expects in fiscal 2020 to see Apple Watch revenue grow 24% and AirPods revenue increase 107% year over year.

"Considering 3 of every 4 Apple Watch customers are new to the device, expect a long growth runway going forward," Huberty said.

Barclays analyst Tim Long, whose firm has an equal weight rating and $236 price target on Apple, also highlighted the unit's growth. He said Apple's wearables performance showed "positive trends for new products," giving hope for innovation in Apple's hardware line finding new profits.

"New AirPods Pro likely one of the hottest Christmas gifts as well as Apple Watch for the December quarter," Citi analyst Jim Suva said. Citi has a buy rating on Apple with a $250 price target.

— CNBC's Michael Bloom contributed to this report.