Why This Could Be a Big Year for the iPhone (and Apple Stock)

Key Points

• Strong iPhone 17 preorder signals are emerging.

• The iPhone's contribution to Apple's revenue remains at about half, and recent growth has accelerated.

• A thinner Air form factor could expand the addressable base and extend the upgrade cycle.

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Apple (NASDAQ: AAPL) just refreshed its flagship product line, and the first read-through from preorder week is encouraging. Apple analyst Ming-Chi Kuo said on Monday that preorder trends for new iPhones indicate stronger initial demand for the iPhone 17 family versus last year, while also flagging uncertainty around the just-announced iPhone Air, Apple's ultra-thin model that replaces the Plus variant. That combination -- solid core demand with a potential new catalyst (it's possible that the iPhone Air is doing better than it looks) -- sets the stage for a notable iPhone year.

The iPhone maker is entering this cycle with momentum. In Apple's fiscal third quarter (closely aligning with the second calendar quarter), management highlighted a quarterly record for iPhone revenue. iPhone sales also accelerated compared with the prior quarter, and the category continues to account for a large share of Apple's total sales. These dynamics matter because iPhone cycles still drive the tech giant's earnings power -- and, by extension, the stock's valuation.

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Image source: Getty Images.

Early reads point to healthy demand

Kuo says preorder demand for iPhone 17 models seems to be outpacing the iPhone 16 lineup, with especially strong interest in the Pro Max. The note also raises open questions about how the iPhone Air will perform, leaving room for a positive surprise. He explained in his note to investors that this is the first time there is an Air model in the lineup, so there's nothing in the past to compare it to. For investors, the key takeaway is that Apple appears to have a solid baseline of demand from loyal upgraders, even as the Air's reception remains a wild card.

Recent results back up this improving picture. In the June-ended quarter, iPhone revenue reached $44.6 billion, up 13% year over year, representing roughly 47% of Apple's $94.0 billion in total sales. That was a step up from the March-ended quarter, when iPhone revenue was $46.8 billion, up about 2% year over year, or roughly 49% of Apple's $95.4 billion in sales. In other words, iPhone growth meaningfully accelerated as Apple headed into its fall launch window.

This matters because the market still prices Apple like a premium compounder rather than a deep-value turnaround. Shares currently trade at around 36 times earnings -- reasonable for Apple when iPhone is growing and services is setting records, but a reminder that the tech company needs steady product cycles to support that multiple.

Why the iPhone Air could be a catalyst

The headline device this year may be the thinnest iPhone Apple has ever made. The iPhone Air is just 5.6 millimeters thick and about 165 grams, slotting between the base and Pro Max sizes with a notably different feel in hand. That new form factor could unlock upgrades from owners who prefer a light, slim device but still want a large display -- an audience Apple hasn't fully served since discontinuing the mini and shifting the Plus. Early hands-on coverage highlights the Air's premium build and ultra-thin profile as its main selling points.

Ultimately, however, there are still questions about Air demand relative to the core iPhone 17 models; if the Air skews niche, the mix benefit could be modest. Most likely, however, a differentiated design will bolster demand by helping bring more fence-sitters off the sidelines throughout the year.

Apple enters this product cycle with strong momentum, making a good year for iPhone (and the stock) more likely -- especially when paired with a compelling new iPhone family. In the June quarter, total revenue rose 10% and earnings per share climbed 12%, with services reaching a new high and the installed base hitting a fresh record. If the iPhone 17 lineup holds its early strength and the Air broadens the upgrade pool -- even modestly -- those tailwinds, combined with Apple's usual holiday seasonality, could keep revenue and earnings growing at healthy, double-digit rates. That, in turn, would help justify today's valuation.

Investors should watch two key things over the next two quarters: any comments from management on iPhone demand (particularly for the new iPhone Air), and whether iPhone growth can stay in the high single to low double digits. If these factors go well, fiscal 2026 may shape up as a great iPhone cycle -- and possibly a strong catalyst for the stock.

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Daniel Sparks and his clients have positions in Apple. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.