Apple (AAPL) will continue to weigh down stock markets next year.
That’s because consumers are likely to skip over the next generation Apple smartphone—the iPhone 7 set to make its debut in September, says Oppenheimer analyst Andrew Uerkwitz, who has the street’s lowest expectations for the phone.
But don’t fret—the drop off for Apple won’t last for long. Virtual reality is likely to pull the tech giant out of its slump.
“We are bullish on [the iPhone’s 2017 upgrade] due to potentially substantial changes with new aesthetics and features that enable a better mobile virtual reality experience,” Uerkwitz wrote in a Tuesday note to clients. The iPhone rumored to be released in 2017 has also been unofficially dubbed the iPhone 8.
The Oppenheimer analyst predicts that while iPhone sales in the 12 months ending Sept. 2017 will fall 6.4% year-over-year—10% below analyst consensus, they will rise 24% in 2018 to 245 million units, 3% above the Street’s estimate.
The problem, Uerkwitz says, is that Wall Street has underestimated just how many consumers are hanging on to their smartphones for more than two years. And if Uerkwitz is right that the iPhone 7 will be underwhelming, pent up demand for the rumored iPhone 8 will be much higher than the street expects.
The rumored iPhone 8, expected to debut late 2017, is said to be a major redesign and that it is Apple’s attempt “to catch up with mobile VR”—a space currently dominated by Samsung and Google (GOOGL), Uerkwitz wrote in his note. Samsung and Google partnered to create a virtual reality headset, Samsung Gear VR, that works exclusively with Samsung smartphones and its superior hardware specs.
Other analysts have also predicted Apple may make a number of rumored upgrades in the iPhone 8. Those include an OLED screen, which is thinner, lighter, and clearer than Apple’s current LED screens.
Still, even if growth returns in 2018, Apple is facing a tougher playing field. Increasingly, Apple will not only be fighting for growth, but also be defending its turf.
Expect “wider swings in Apple’s iPhone outlook” and that “challenges abound” for the tech colossus, the Oppenheimer analyst wrote, reiterating the firm’s “Perform,” or “Hold” rating.
Investors, take note.