Apple's iPhone 17 Rollout Tanked the Stock. Time to Buy the Dip?

The market was unimpressed by Apple's (AAPL 0.64%) product rollout on Tuesday.

"Apple's not really innovating," was one analyst's reaction. "We were like, 'meh,'" said another. On Wednesday, shares of the tech giant fell more than 5% from Tuesday's pre-rollout high, and remain down more than 6% year to date.

Here's why this might be a great time to buy the stock.

Slow and steady

In the famous Aesop fable, the "slow and steady" tortoise beats the fast-moving hare in a race. But that's not the way things usually work in the tech world.

Investors are constantly clamoring for big new innovations and bold new designs. But for the past several years, Apple has only offered incremental upgrades to its iPhone and other products. Yes, each camera is slightly better, each processor is a bit faster -- but (aside from its niche $3,499 Vision Pro VR headset), the company's most recent product launches were the HomePod smart speaker in 2018 and AirPods in 2016.

Apple is also widely regarded as being behind its big tech peers in the AI race, and Tuesday's iPhone 17 rollout didn't showcase any new AI capabilities like the ones Alphabet (GOOG -0.09%) featured in its new Pixel phone rollout in August.

The conventional wisdom says that without a game-changing product or innovation (like, for example, the rumored foldable iPhone Air), Apple's inferior position in the AI race is going to weigh on its near-term earnings. But there's another factor that might tip the scales in Apple's favor.

Nothing lasts forever

There's always going to be a market for iPhones. Sooner or later, older models go obsolete (or get cracked screens, or fall into the toilet, or...). And that may be about to happen for a massive group of iPhone users.

Of the top 10 iPhone models in use today, by far the most popular is the iPhone 13 -- which came out in 2021 -- with a 16% user share. Meanwhile, 2020's iPhone 12 still has a 7.2% user share, and 2019's iPhone 11 has a surprisingly strong 9.2% share of users (including me). That means nearly one-third of current iPhone owners -- more than 400 million people -- are using a model that's at least four years old. These are models with 12-megapixel front cameras (vs. 48-megapixel on the new iPhone 17), lightning connectors as opposed to USB-Cs, and no ProMotion 120 frame-per-second refresh technology or Neural Engine AI compatibility.

It's no coincidence that Apple explicitly compares the iPhone 17's specs to the iPhone 13's on its website, boasting that the A19 chip's CPU is 1.5x faster and its GPU more than two times faster, with a battery that supports 11 more hours of video playback on a charge. The company is also offering store credit for trade-ins of "iPhone 13 or higher." Tim Cook and company clearly know that a lot of iPhone 13 users may be in the market for a new phone, and they're specifically encouraging them to upgrade now.

Brand loyalty

But will someone upgrading their iPhone 13 actually buy a new iPhone instead of a Pixel or another competitor? For the vast majority of iPhone users, the answer is yes. In May, research firm CIRP pegged Apple's iPhone customer retention rate at an industry-leading 89%, compared to just 76% for runner-up Samsung. That's especially impressive given how fierce the competition is.

Apple's major upgrade cycle may have already begun: the company reported double-digit iPhone revenue growth in its most recent quarter. In other words, this slow-and-steady tortoise could actually be winning the race without a flashy new product. The market seems oblivious, though: on a price to free cash flow basis, Apple's 37x valuation is much lower than Alphabet's 45x and Microsoft's (MSFT -1.13%) 53x.

Now looks like a good time to buy shares of Apple, before big iPhone sales numbers -- or an actual flashy new product -- surprise the market and send shares higher.