Don't worry about Apple's iPhone 7 sales, 'a powder keg is forming'

Potentially weak iPhone 7 sales are clouding the market's judgment on Apple (AAPL) shares, Cowen analysts say.

In a late Monday note, Cowen analysts said, "while iPhone 7 still looks about flat [with] iPhone 6S and macro risk is clear, our new installed base analysis suggests a 'powder keg' is forming." The note recommended that investors buy the stock.

Cowan points out that more people will be walking around with iPhones that are at least two years old, and they are the group most likely to foot the bill for an iPhone 7.

"...The entire growth of the base — and then some — will be from older units that are ripe for upgrades, especially to a new OLED-enabled form factor," Cowan analysts noted.

That said, the Nikkei Asian Review reported Tuesday that Advanced Semiconductor Engineering, the world's largest chip assembler and tester, said Apple was being more conservative placing orders compared to last year.

The newest model of Apple's flagship device is expected to be released later this year.

Shares of Apple have been under pressure this year, falling 11 percent. The stock gained about 1.7 percent Tuesday.

AAPL in 2016

Source: FactSet

Disclosure: Cowen makes a market in Apple stock.

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