Every few years Apple does something that sounds like a minor product tweak but is actually a meaningful change to how it makes money.
The shift from selling music to streaming it. The move from hardware warranties to AppleCare subscriptions. The build-out of Services into a business that now generates more than $30 billion a quarter. Each time, the announcement was quiet.
The implications weren’t.
On July 28, two days before Apple’s Q3 earnings call, the company launched Apple Upgrade.
Bank of America analyst Wamsi Mohan published a note the same day saying he was keeping his Buy rating and $380 price target and explained why the program changes something fundamental about how Apple captures value from the devices it sells.
What Apple Upgrade is and how the Klarna leasing program works
Apple Upgrade lets customers lease an iPhone, Apple Watch, Mac or iPad instead of buying it outright, according to CNBC.
Lease terms are 12 or 24 months for iPhone and Apple Watch, and 24 or 36 months for Mac and iPad. Monthly payments start at $17.99 for iPhones, $11.99 for Apple Watch, $24.99 for Mac, and $11.99 for iPad.
Customers can lower those payments by trading in their existing device when they enroll, and they earn 3% Daily Cash back when paying with Apple Card.
Related: Apple rewrites how Americans pay for iPhones
At the end of the lease, customers can upgrade to the latest model, buy their current device outright, or return it and exit the program. AppleCare+ is optional and not included in the lease price.
With the launch, Apple discontinued its existing iPhone Upgrade Program and iPhone Payments. Customers already enrolled can remain for now, but new sign-ups stopped on July 28, according to TechCrunch. The stock briefly topped $5 trillion in market cap the same day.
Why Bank of America sees Apple Upgrade as a meaningful long-term revenue shift
Mohan’s note is careful about what Apple Upgrade actually is.
The mechanics, trade-ins, monthly financing, hardware upgrades, aren’t new. Apple has offered versions of all of them for years.
What’s new is the structure and what it means for who captures the residual value of a returned device.
Under a traditional purchase model, the customer owns the device. They decide when to sell it, trade it in, or keep it. Apple only gets it back if the customer chooses to trade in.
Under Apple Upgrade, the customer pays a monthly lease rate, returns the device at the end of the term, and Apple gets it back every time.
“The net incremental opportunity we see is the combination of lease payments and returned-device value with a faster, more predictable upgrade cycle,” Mohan wrote.
That returned device can be refurbished, parted out, or resold. That’s a revenue stream Apple doesn’t fully capture under the current model.
The lease economics Bank of America used to evaluate Apple Upgrade
Mohan ran the numbers on the iPhone 17 Pro at $1,099. A 12-month lease runs $45.99 per month, totaling roughly $552 in customer payments before the device is returned.
That implies Apple assigns the returned phone a residual value of about $547, or roughly 50% of the original retail price.
Apple currently offers up to $560 for an iPhone 16 Pro as a trade-in. So the lease-implied residual is modestly below what the company pays for a comparable device today, meaning Apple may recover returned devices at more attractive economics while still giving customers a compelling monthly price.
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The 24-month lease tells a different story. At $31.99 a month, total payments come to around $768, leaving the returned device with an implied residual of about $331, or 30% of MSRP. Apple currently offers around $410 for an iPhone 15 Pro trade-in.
That gap means the longer the lease, the more favorable the economics become for Apple on the back end.
Mohan flagged that actual profitability will depend on refurbishment costs, device condition, secondary-market pricing, logistics expenses and how economics are split between Apple and Klarna.
Favorable setup, but not guaranteed.
What Apple Upgrade means for Apple’s relationship with carriers and customers
One of the more interesting parts of Mohan’s note is what he says the program could do to Apple’s direct relationship with customers.
Carriers have historically driven iPhone upgrades through subsidies and promotional trade-in offers. Apple has benefited from that but has also been dependent on it.
An Apple-branded leasing path that doesn’t need a carrier changes that. When a customer signs up through Apple Upgrade, Apple is the one handling the sale, the device setup, the AppleCare pitch, and the accessories conversation. It also knows exactly when that customer is coming back.
Carriers don’t disappear from the picture, but their grip on the upgrade moment loosens every time a customer chooses to go directly through Apple instead.
Mohan characterized the change as increased channel influence rather than carrier disintermediation. Carriers retain important advantages through subsidies and Apple still facilitates carrier promotions through its own stores.
The difference is in the degree of control Apple now has over the customer relationship when the sale happens directly.
Josh/Getty Images
Most Apple Upgrade coverage isn’t talking about 5 important things:
- AppleCare gets a new entry point. AppleCare+ is optional under Apple Upgrade but Apple controls the enrollment moment. Every lease sign-up is a direct upsell opportunity for its highest-margin protection plan.
- Apple now knows your upgrade cycle exactly. Under the old trade-in model, Apple had no visibility into when you’d come back. Under a lease, it knows the exact month you return. That’s a planning advantage most consumer hardware companies don’t have.
- Refurbished device supply becomes predictable. Apple’s certified refurbished business has always been supply-constrained. A steady monthly stream of returned lease devices changes that and could make refurbished iPhones a more significant revenue line.
- iPhone pricing optics shift entirely. $17.99 a month and $1,099 upfront are the same phone. One of those numbers is a lot easier to say yes to. Apple hasn’t cut its prices. It’s just changed the number people see first.
- Klarna gets Apple’s customer data relationship. Every Apple Upgrade lease runs through Klarna’s underwriting. That gives Klarna a direct financial relationship with millions of Apple customers as it continues building its consumer banking ambitions.
Bank of America’s $380 Apple price target and the July 30 earnings setup
Mohan’s $380 target puts roughly 13% upside on the table from Apple’s July 28 close of $336.91. He gets there by applying 37 times his 2027 earnings estimate of $10.29 a share.
That multiple sits above Apple’s five-year historical range of 19 to 35 times, and Mohan is comfortable with that. His case is that a multi-year iPhone upgrade cycle, agentic AI, Services growth, Apple’s cash pile, and programs like Apple Upgrade building recurring revenue together justify paying above the historical ceiling.
The note lands two days before Apple’s Q3 earnings on July 30 at 5pm ET. Wall Street consensus is for revenue of $108.9 billion and EPS of $1.89. It will be Tim Cook‘s final earnings call as CEO.
Mohan’s pre-earnings note says the quarterly numbers aren’t the main event for the stock right now. Apple Upgrade is. How investors process what the leasing model means for Apple’s recurring revenue potential over the next two to three years is the bigger question.
The risks are real. iPhone demand could soften. Siri’s AI rollout could disappoint. European regulators could keep squeezing the App Store. Tariffs and longer replacement cycles are both still in play.
On the other side, stronger Pro iPhone sales, better product mix lifting gross margins, and faster Apple Upgrade adoption could all push the stock higher than $380.
Mohan sees more upside than downside and is staying at Buy regardless of how July 30 prints.
