The Apple (NASDAQ:AAPL) share price exploded in 2020, increasing by just over 70%. In fact, this upward momentum pushed the US business’s market capitalisation beyond $2.1trn. As a result, Apple is now the largest company in the world based on its market cap. But can it continue to grow from here?
The 5G potential of the Apple share price
I think it’s fair to say that the interest in purchasing Apple shares for growth has withered recently. After all, its ability to offer triple-digit returns like other technology stocks has become quite limited due to its size. And yet, explosive growth may still be on the horizon.
Relatively speaking, the rollout of 5G networks across the US and UK has only just begun. And looking at its latest earnings report, Apple is seeing surging 5G-enabled iPhone sales. The demand for 5G-enabled mobile devices has allowed it to generate $113.5bn from iPhone sales alone in the last six months. That’s a 34% increase from a year ago. Considering most of this is being driven by its newly launched iPhone 12, whose price starts at $799, it’s clear to me that individuals are more than happy to pay a substantial premium to gain access to the new 5G networks. And let’s forget the world is currently in a semiconductor shortage that’s undoubtedly limiting Apple’s production volumes.
Combining its iPhone sales performance with its other devices and services, growth of total revenue and net profits came in at 36% and 56%, respectively. Given that 5G is only getting started, and Apple is now taking on Intel with its new M1 processor, I see no reason why its share price can’t continue to climb higher over the long term.
The risks that lie ahead
Apple may be the biggest company in the world, but it’s got plenty of competitors to contend with. Samsung has long been its key rival in the arena of smartphones, and that’s not about to change. In fact, from a global perspective, Samsung is actually the dominant player with a 20% market share versus Apple’s 16%.
Meanwhile, the semiconductor shortage, while ultimately a short-term problem, is causing quite a bit of disruption across the industry. Apple CFO Luca Maestri has stated that the management team expects device revenue for the next quarter to be impacted by $3bn to $4bn. But should the shortage prove to be worse than expected, the Apple share price may suffer upon the next earnings release.
Should I buy Apple at a $2trn market cap?
In my experience, making an investment decision based on the size of a company is often a recipe for disaster. It’s true that smaller businesses have the potential to generate higher returns. But they are often small for a good reason.
A more intelligent question to ask, I feel, is will this business still be relevant in 10+ years? In the case of Apple, thanks to its vast portfolio of products and growing collection of services like Apple Pay, and Apple TV, I believe it will be. So, I think the Apple share price can continue to grow even with a $2trn market capitalisation and would consider adding this business to my portfolio.
