On 3 January, consumer tech giant Apple (NASDAQ:AAPL) became the world’s first $3trn company for a brief time.
The company, which is the largest holding in Berkshire Hathaway’s portfolio, representing over 40% of its total at around $150bn, has had a phenomenal 18 months.
Recent performance
Apple’s share price rose more than 30% in 2021 as coronavirus lockdowns saw spending on iPhones, Macs and iPads rise. In fact, as of the end of September 2021, the company was earning more than $1bn a day.
Also, in early December the stock price rose further after Morgan Stanley increased its 12-month price target to $200 while Moody’s upgraded Apple to a triple-A rating.
Revenue and potential
The iPhone accounts for around half of the company’s sales. while its iPads and Mac computers also provide substantial revenue.
However, an increasingly important source of revenue is the tech giant’s services business. This includes software sold through the Apple store, storage space via iCloud and streaming services such as its music, television and fitness subscription platforms.
Some analysts see this area as a more reliable revenue source than its physical products. It’s also growing as a percentage of Apple’s total business.
The company has also diversified its hardware offerings into AirPods, Apple Watches and other wearables. This accessory business has grown substantially and is now a business area worth in excess of $30bn annually.
Looking to the future, virtual and augmented reality products as well as car development and production, could send Apple’s value towards the $4trn mark.
Risks
As with any stock, there are risks, however. First, legislators in Washington and across the world are targeting the tech giants. For Apple, this includes questions about possible monopolistic-like charging on its App Store and potential collusion with Alphabet‘s Google on searches within the App Store.
Second, though the iPhone is the largest contributor to the company’s revenue, its share of the smartphone market is declining. And other Apple products are also high-end items. If world inflation soars, or the world economy falters, then sales could decline in favour of more price-competitive brands,
$4trn?
Despite the risks, I take comfort in the continued support for Apple from Warren Buffett. He reiterated his confidence in the brand and management during Berkshire Hathaway’s 2021 Annual Meeting. Although I could be wrong, this gives me confidence that the tech giant’s stock price might have more upside potential.
The company made its stock market debut in 1980 with a value of $1.8bn. It became the first company to hit a stock market valuation of $1trn in 2018, then a $2trn market cap in 2020. It hit $3trn in 2022. I think a $4trn valuation in 2024 is entirely possible.
Apple’s turnover increased by around 30% in 2021 and although annual revenue growth over the last five years was closer to 10%, profitability seems to be increasing. Free cash flow is also at its highest, which will help the company continue buying back shares as it’s done over the past few years. All of this should help drive the share price higher. That’s before even taking into account potential new products such as self-driving vehicles and wearable headsets targeting the metaverse.
In any case regardless of when, or indeed if, it hits that level, I’m still confident about its growth trajectory and in adding this stock to my own holdings.
