Apple is suddenly on fire again.
Shares of the iPhone maker surged 6% on Wednesday to their highest level since July 2015. Apple is now up an impressive 11% so far this year, blowing past the rest of the stock market.
Apple’s latest rally was triggered by this week’s strong earnings report that raised hopes on Wall Street about the potential for blockbuster demand for the next generation of iPhones.
Not only did Apple post its first sales increase in a year, but Tim Cook & Co. sent positive signals about demand heading into the rumored release of iPhone 8 later this year.
Timothy Acuri, a Cowen & Co. analyst who covers Apple, predicted in a research report that there will be a “powder-keg fueled super cycle this fall” for the iPhone.
Apple said the number of iPhone users is growing by “strong double-digits” right now.
“That’s very good for us for a number of reasons, including the fact that it’s big driver for our services business,” Luca Maestri, Apple’s chief financial officer, said during Tuesday’s conference call.
Apple’s services division, which includes Apple Pay and AppleCare, enjoyed an 18% pop in sales last quarter to exceed $7 billion.
Mizuho Securities analyst Abhey Lamba was so encouraged by Apple’s iPhone growth that he upgraded his price target on the stock to $135. (Apple closed at $121.35 on Tuesday but has since surged as high as $128.48).
“This is clearly helpful. Apple has a very sticky and loyal customer base. People who end up in Apple’s family are there for a long time,” Lamba said.
Apple hasn’t officially named its new iPhone yet, but Lamba believes it will be iPhone 8.
Expectations are high about the new iPhone in part because this year marks the 10th anniversary of the first iPhone launch.
The key will be whether the new iPhone packs powerful enough features after complaints that the last few iterations didn’t include improvements dramatic enough to justify upgrading.
“The more we’re able to innovate with new generations of products, clearly that plays a role in the upgrade rate,” Apple’s CFO said.
Hopes for compelling features and strong demand for the iPhone is why Cowen & Co.’s Acuri believes Wall Street “continues to grossly underestimate” Apple’s ability to grow profits the next few quarters.
Despite all the hopes for the iPhone 8, Apple still faces a number of challenges.
Apple execs admit that the strong U.S. dollar hurts the company by making products sold overseas more expensive for foreigners. While the greenback surged after the election, it has since cooled off considerably.
Apple is still also contending with what remains an oversaturated smartphone market. Apple won’t be able to rely on help from Samsung’s Galaxy Note 7 fiasco for much longer.
Still, Cowen & Co. believes it’s almost a “layup” that Apple shares rise to $135 over the next 12 years. Acuri said he can “easily” see Apple jumping to $145 or even $150.