Apple Should Return To $3T Soon, Issues Are Temporary
$Apple(AAPL.US$ Early in 2022, Apple became the first company to reach a $3T market cap, even though only very briefly.
A range of macroscopic headwinds brought it back to the current $2T level.
However, in my opinion, it is only a matter of time before it returns to $3T again – with style and more permanently. And the time might be sooner than you think.
Apple's transformation into a service company and the launch of its own chips are two powerful catalysts.
Transformation from a hardware company to a service company
Many investors associate AAPL mostly with hardware (iPhone, Mac, et al) simply because it is so hugely successful with them. However, the main reason I am bullish on its long-term picture is its transformation into a service business. Apple's installed base of active devices set all-time highs in all of its major product divisions and geographic regions in 2022. And its services-related revenues are making up an increasingly larger portion of the total sales as seen in the chart below. To wit, according to this Trefis analysis, APPL's Services business raked in a total of $56B of revenues in FY 2020, which already is its second-largest segment and contributed about 19.5% of its total revenues. Looking forward, this segment is projected to almost double to reach sales of more than $93B.
And I think the projection is totally plausible (and you can see the details of the projection by following the link provided above). AAPL's immense installation base already laid the foundation for the rapid growth in its service revenues, which enjoy higher margins and better recurrence.
A range of macroscopic headwinds brought it back to the current $2T level.
However, in my opinion, it is only a matter of time before it returns to $3T again – with style and more permanently. And the time might be sooner than you think.
Apple's transformation into a service company and the launch of its own chips are two powerful catalysts.
Transformation from a hardware company to a service company
Many investors associate AAPL mostly with hardware (iPhone, Mac, et al) simply because it is so hugely successful with them. However, the main reason I am bullish on its long-term picture is its transformation into a service business. Apple's installed base of active devices set all-time highs in all of its major product divisions and geographic regions in 2022. And its services-related revenues are making up an increasingly larger portion of the total sales as seen in the chart below. To wit, according to this Trefis analysis, APPL's Services business raked in a total of $56B of revenues in FY 2020, which already is its second-largest segment and contributed about 19.5% of its total revenues. Looking forward, this segment is projected to almost double to reach sales of more than $93B.
And I think the projection is totally plausible (and you can see the details of the projection by following the link provided above). AAPL's immense installation base already laid the foundation for the rapid growth in its service revenues, which enjoy higher margins and better recurrence.
Strategic shift to its own chips
Another very powerful catalyst at work in my view involves AAPL's strategic launch of its own chip lines. Back in June 2022, AAPL unveiled the M2 chip, its next-generation chip following its M1 chip. The M2 chip is designed based on the SOC concept (System on a Chip) and it's developed for use in both the Macs and iPads product lines. The M2 chip design is vastly better than its M1 chip and also the Intel chip it used to deploy as its CEO Tim Cook commented in the 2022 Q2 earnings report (slightly edited and the emphases were added by me):
Last month we announced another breakthrough with M1 Ultra, the world's most powerful chip for a personal computer. The incredible customer response to our M1-powered Macs helped propel a 15% year-over-year increase in revenue, despite supply constraints. We now have our most powerful Mac lineup ever, with the addition of the entirely new Mac Studio.
Another very powerful catalyst at work in my view involves AAPL's strategic launch of its own chip lines. Back in June 2022, AAPL unveiled the M2 chip, its next-generation chip following its M1 chip. The M2 chip is designed based on the SOC concept (System on a Chip) and it's developed for use in both the Macs and iPads product lines. The M2 chip design is vastly better than its M1 chip and also the Intel chip it used to deploy as its CEO Tim Cook commented in the 2022 Q2 earnings report (slightly edited and the emphases were added by me):
Last month we announced another breakthrough with M1 Ultra, the world's most powerful chip for a personal computer. The incredible customer response to our M1-powered Macs helped propel a 15% year-over-year increase in revenue, despite supply constraints. We now have our most powerful Mac lineup ever, with the addition of the entirely new Mac Studio.
Massive share buybacks are even more potent thanks to the temporary stock price setbacks.
$Nasdaq Composite Index(.IXIC.US$ $Amazon(AMZN.US$ $NVIDIA(NVDA.US$ $Invesco QQQ Trust(QQQ.US$ $ProShares UltraPro Short QQQ ETF(SQQQ.US$ $Taiwan Semiconductor(TSM.US$
$Nasdaq Composite Index(.IXIC.US$ $Amazon(AMZN.US$ $NVIDIA(NVDA.US$ $Invesco QQQ Trust(QQQ.US$ $ProShares UltraPro Short QQQ ETF(SQQQ.US$ $Taiwan Semiconductor(TSM.US$
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