Should Apple Inc. (AAPL) Abandon Intel (INTC) Chips, Do Gross Margin Tailwinds Soar Ahead?

Amit Daryanani says the chip shift is "low probability" and certainly would not happen overnight- but he stands bullish on AAPL's prospects.

Is Apple Inc. (NASDAQ:AAPL) set to toss out Intel (NASDAQ:INTC) and create chips in-house for its Macs in two years’ time?

Top analyst Amit Daryanani at RBC Capital weighs in following unconfirmed Bloomberg buzz, sizing up “low” odds- but all the same, the theoretical possibility could prove compelling for the tech titan.

Chiming in on a prospective evolution away from INTC chips, the analyst reiterates an Outperform rating on AAPL stock with a $203 price target, which implies a 22% upside from current levels.

Ultimately, “While we think this is a low probability event, the potential to do so or even be discussing this – could simplistically provide AAPL with gross margin tailwinds (either via better concessions from INTC or cheaper cost if they truly design these chips in house). We estimate by moving processors in house and away from INTC, AAPL could see EPS benefit in the range of $0.20-0.25. Even though incremental EPS impact isn’t significant, the potential move could enable AAPL to better differentiate its Mac line up vs. PCs. Designing its own chips enable AAPL to determine a technological roadmap for Macs that is independent of INTC. We could see AAPL designing its chips for better AR/VR performance and AI workloads; similar to its recent iPhone A11 Bionic chip. The move could also help create a seamless experience across its devices as iPhones and iPads already have chips designed by AAPL in them. However, we note that the shift would be technically complex and likely not be immediate,” Daryanani contends, spotlighting an advantage of various tailwinds ahead.

Between gross margin gains from reduced costs, NAND tailwinds, as well as more efficiency in yield, Services gains set to bolster sales, and capital allocation ahead, Daryanani sees enticing reason to keep betting on Apple’s opportunity.

Looking ahead to the second fiscal quarter, the analyst angles for $60.1 billion in revenue and $2.62 in EPS, not quite as bullish as the Street’s expectations calling for $61.5 billion in revenue and $2.71 in EPS from the titan. For fiscal 2019, the analyst continues to wager AAPL will bring $275.0 billion to the table in revenue and $13.15 in EPS against the Street’s $271.5 billion in revenue and $12.98 in EPS estimates.

Amit Daryanani has a very good TipRanks score with an 84% success rate and a standout ranking of #11 out of 4,765 analysts. Daryanani realizes 28.2% in his annual returns. Investors following Daryanani’s recommendations on AAPL stock will on average gain 28.2% in profits.

TipRanks indicates the tech titan has a mostly bullish backing on the Street. Based on 29 analysts polled in the last 3 months, 16 rate a Buy on AAPL stock while 13 maintain a Hold. The 12-month average price target stands at $190.63, marking a nearly 15% upside from where the stock is currently trading.

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