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Apple VR headset could become flagship product in mixed reality adoption

With Apple expected to announce the release of its VR headset at the WWDC 2023 event, CFRA Research Senior Equity Analyst Angelo Zino joins Yahoo Finance Live to discuss how the VR headset could become a flagship product in mixed reality, as well as how Apple stock will react.

Video transcript

JULIE HYMAN: For more on anticipation of these new Apple products, we're joined by CFRA Research senior equity analyst Angelo Zino. Angelo, it's good to see you here. I think that Brad put it very well earlier when he said, does anybody want this thing? Like, nobody asked for this in terms of not just Apple's, but just the whole concept of this product in general. I'm sure some people have. But I mean, how do you think this is going to land?

ANGELO ZINO: Yeah, I mean, listen I don't think it's going to be a huge seller like everybody else out there. But I think that's part of the great thing about this is the expectations are actually pretty low in terms of monetizing this thing, at least in year one. I mean, I think for the most part, everyone is looking for them to sell less than one million units. Apple themselves, I think, has paid something along the lines of 900,000 units.

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But that's even significantly higher than anyone else out there anticipates they're going to sell in terms of that kind of 100,000 or 200,000 units that we're kind of looking at. Now that said, I think, again, this is all kind of about thinking more forward looking in nature and the potential this has 3-5 years down the road in our view.

Yes, this is going to come probably with some steep price point. Let's call it $3,000. And we'll know soon. But even so, I mean, it's going to be kind of the start of we think of. It'll essentially be their flagship product, right, where we expect them to kind of over time roll out more mainstream oriented offerings out there where it could help potentially lead to greater adoption on the mixed reality side of things.

BRAD SMITH: Even as we've been tracking the share price kind of side by side with you, Angelo, I wonder the significance of the all time high that we could potentially see Apple close that on a day where you've got WWDC taking place and what the company can either say right or wrong to maintain where the share price is at right now and continue to appeal to investors.

ANGELO ZINO: Yeah, no, I think that's a fair point. I mean, listen, it's definitely run up into this event. And you know, typically, you don't get a lot of news heading into a developers conference because there's just-- it's typically software driven in nature. This is a little bit different clearly, given that you have the mixed reality headset in there. I mean, you'll potentially also get some new kind of Macs or what have you, a 15 inch new version out there.

But that said, we kind of look at this-- this is now a stock that is kind of run into kind of the mid to high 20s on a calendar 24 basis. We do think there's still upside potential here on the stock price. But you know, I think a big reason also you're kind of seeing a move in the stock price here is the second half expectations we think still are too low from where The Street is at and where calendar 24 estimates are despite the fact, there are fears of a recession out there. And a lot of that has to do with the easy comparisons from a year ago. So you are going to see accelerating growth out there.

So we do think kind of the new highs here are warranted in terms of Apple stock price move. And it isn't necessarily just hype out there. But in terms of what else they can kind of announce here, that maybe gets the momentum going, as clearly, everybody is all about AI right now. We'd love kind of see something in terms of their AI ambitions.

They clearly have kind of an ecosystem out there to do a lot out there. They do have Siri, potentially kind of looking something along the lines of making Siri a lot smarter out there, could potentially launch an M3 silicon chip out there. I mean, so there are ways that they could surprise at this event we think. But most importantly is going to be that mixed reality headset, and how they kind of potentially package that in terms of showcasing some of the real life capabilities of that device.

JULIE HYMAN: Yeah, Angelo, somebody on the show earlier joked if they just called it an AI headset, that people would-- that the stock would go up another or whatever percent. Do you think that will be woven into today's presentation EI talk-- EI? AI talk, because Apple sort of resisted it to some degree in their earnings, right, or at least they weren't as sort of flaunting it like so many other companies have been.

ANGELO ZINO: Yeah, I mean, listen, they were very Apple-like kind of when they reported their March quarter results, right? I mean they kind of alluded to things like crash-- collision fall detection and stuff like that. And that is how Apple is. They're just very humble.

And they're very kind of-- they kind of stay away from kind of leaking anything out there. And we think that's going to pretty much be the case here at this event. I mean, I personally don't think there's going to be much in terms of the AI rumors out there. They might look to tease something out there or toy around with something. But again, I mean, we do think Apple ultimately will be a winner in kind of the emergence of AI over time. They kind of have that kind of ecosystem and kind of the what consumers do they have that kind of ecosystem that all consumers out there want to be a part of.

So it's just a matter of time before Apple kind of is able to flex their muscles on the AI side of things. I just don't know if this is going to be the event that they're going to do it in. Personally, I don't think it will be.

BRAD SMITH: Further to that and perhaps kind of just elaborating more on it, I mean, Apple has already signaled in its previous launches that it doesn't necessarily need to be a first mover because of the install base that it already has. It just needs to get it right. Is this Apple signaling even in the fact that they didn't bring up AI themselves, it was questioned to them on the most recent earnings call, is this them signaling that they're just going to wait and see how the market starts to settle out for AI demand, and that's where they'll make a play thereafter?

ANGELO ZINO: I think so. And to be honest with you, I mean, Apple is typically late to the game. It's kind of their motto in many respects. They're not necessarily the first to market products or software for that matter. They're kind of the ones that-- they're the ones that end up perfecting it. And then they're the ones that essentially get it right, and they're able to kind of leverage again that ecosystem that 2 billion plus devices out there, Where they can leverage those type of capabilities to the right audience out there. And they have an audience out there that is willing to pay for new capabilities out there.

So over time, again, I mean, it is kind of Apple getting it right and kind of taking their time with it. There are also regulatory pressures out there, right, that you also have to think about with AI and kind of privacy measures and all that stuff where Apple kind of has to think about things I think a little bit more than some of the other large caps tech companies do. So this is Apple may be being extremely cautious kind of to their nature. And again, I think it's something they're going to be extremely slow with.

JULIE HYMAN: Angelo, just really quickly before we let you go, just to put a fine point on it, Apple shares are trading at a record today. How much further do you think that they could go?

ANGELO ZINO: So our 12 month target price is $190. I mean, that assumes a target price of about 28 times to our 24 estimate. Again, we think this is a company that could trade as high as about a 30 multiple on a forward basis. And like we said, we do think there are upside expectations or potential here to the estimates in the second half of this year and into 2024.

And we do think foldable devices is probably a bigger catalyst down the road into calendar 24 and 25. And I think that in itself could kind of drive significant upside to Apple shares.

JULIE HYMAN: And just for our viewers, 19074 is the price at which Apple will reach $3 trillion in market cap if it gets there. Angelo, thanks so much for joining us this morning. Angelo Zino of CFRA. Appreciate it.