01:53 PM EDT, 04/11/2024 (MT Newswires) -- Apple's ( AAPL ) gross margin seems underestimated by investors once again even as vertical integration and increased mix of services could spur margin improvement for the iPhone maker, BofA Securities said in a report Thursday.

"In our opinion, the Street continues to underestimate the long-term gross margin potential for Apple ( AAPL ) across both products and services yet again, where we see about 180 [basis points] of product gross margin upside and about 150 bps of services margins upside over the next few years," the brokerage said.

BofA said vertical integration could help Apple ( AAPL ) reduce component cost per iPhone by $10 to $20 by developing modems in-house, and could also lower the cost of goods sold in the services business by designing its own data center architecture chips and running more of its own data centers.

BofA also expects Apple ( AAPL ) to raise pricing of individual hardware devices over time, which it said could further lift gross margins.

Such factors could boost the iPhone maker's fiscal 2026 gross margin by 160 bps to 47.5%, higher than the current consensus of 46.2%.

BofA is maintaining its buy rating on the stock with price objective of $225.

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