Two months ago, Apple (AAPL 1.66%) began taking pre-orders for the iPhone X. iPhone fans immediately rushed to get in line (figuratively) for the greatest iPhone yet, driving lead times to as much as six weeks.

iPhone X lead times have fallen dramatically over the past month, though. Indeed, Apple has nearly reached supply demand equilibrium. This has led some analysts to worry that demand hasn't lived up to expectations. However, usage statistics indicate that Apple has sold a lot of iPhone X units this quarter. Furthermore, strong interest from China should boost iPhone X sales next quarter.

No super cycle?

Not too long ago, most pundits believed that the iPhone X would be in short supply throughout the holiday season. The initial surge in wait times seemed to validate predictions of a "super cycle" of above-trend iPhone sales growth, driven by strong upgrade demand and market share gains.

Front and rear views of the iPhone X in silver and space gray

Some analysts think that demand for the iPhone X has been lukewarm. Image source: Apple.

However, Apple is now guaranteeing next-day delivery for most iPhone X models ordered online. Availability in retail stores is still somewhat spotty, but most Apple Store locations, carrier stores, and other tech retailers have at least some iPhone X stock.

There are two possible explanations for this better-than-expected iPhone X availability: weaker demand or higher supply. Several Wall Street analysts seem to think it is the former. Just in the past week, analysts Jeffrey Kvaal of Instinet and Karl Ackerman of Cowen have issued research notes cautioning that iPhone X demand remains modest.

Why are analysts writing off supply improvements?

Wall Street's focus on demand factors rather than supply seems misguided. It's implausible that Apple could have reduced the iPhone X lead time by five weeks since late October without any improvement in supply.

Furthermore, iPhone X usage growth accelerated from late November to early December, which is a strong signal of higher supply. The iPhone X now accounts for more than 5% of all iPhone usage.

This probably means that there are 20 million to 30 million iPhone X devices in use. The total number sold is likely higher that that -- after all, phones that were bought as Christmas presents probably haven't been activated yet -- while iPhone X shipments would be still higher, as retailers and carriers are building up inventory of the new model.

China could drive incremental demand next quarter

Bearish analysts seem to believe that if the iPhone X is widely available, there must not be much demand -- because otherwise buyers would have already scooped up all of the available stock. There is some truth to this logic: Clearly, Apple has already satisfied all of the demand from iPhone fanatics who wanted an iPhone X as soon as possible.

That said, product availability isn't the only thing determining the cadence of iPhone sales. For example, people using device payment plans will typically wait until their old phones are paid off before upgrading. And in China, many people will use the occasion of the Chinese New Year to splurge on a pricey new phone.

A recent RBC consumer survey found that there was significantly more interest in the iPhone X in China compared to the U.S. It's important to recognize that surveys aren't very reliable -- the responses may reflect consumers' aspirations rather than their actual plans. Nevertheless, this is strong evidence that the iPhone X is a coveted product in China. That bodes well for Apple's sales in its second-largest market between now and mid-February.

The stock is still fairly cheap

One reason why Wall Street analysts may be feeling jumpy is that Apple stock currently trades for about 15 times its projected fiscal year 2018 earnings. That's near the high end of its historical valuation range, which has some investors looking for an exit strategy.

The exterior of an Apple Store

Most Apple earnings estimates don't factor in the benefit of tax reform. Image source: Apple.

However, this doesn't take account of the pending benefit from tax reform. Between the lower statutory federal tax rate and the exemption of most abroad income from U.S. taxes, Apple's effective tax rate is set to fall from around 25.5% to less than 20%. (Just how far below 20% isn't clear yet.) This will provide a meaningful boost to earnings per share.

Even more importantly, Apple's massive foreign cash hoard is about to become available for distribution to shareholders. Apple will be able to repatriate more than $200 billion in 2018, net of a one-time 15.5% tax on its foreign cash. The company may set aside some cash for paying down debt and opportunistic acquisitions, but it would still have the wherewithal to pay a special dividend of about $30 per share or repurchase an equivalent amount of stock.

Adjusting for the impact of tax reform on Apple's tax rate and its potential capital returns, Apple stock trades for no more than 12 times earnings. That could give it plenty of upside for 2018.