Source: PaxForex Premium Analytics Portal, Fundamental Insight
In August 2018, Apple achieved a significant milestone by becoming the first publicly traded US company to reach a market capitalization of $1 trillion. Continuing its impressive growth, the company surpassed the $2 trillion mark in August 2020, followed by a groundbreaking achievement of reaching a $3 trillion market cap in January 2022.
As of now, Apple's market capitalization remains close to the $3 trillion mark. The question arises: Can the company maintain its biennial pattern and attain a market cap of $4 trillion by 2024? To determine the feasibility of this projection, let's examine its historical growth, projected growth rates, and valuations.
During the fiscal period from 2017 to 2022, Apple experienced a noteworthy growth trajectory. Its annual revenue demonstrated a compound annual growth rate (CAGR) of 11.5%, while its split-adjusted earnings per share (EPS) exhibited an even higher CAGR of 21.6%.
In simpler terms, Apple's annual EPS nearly tripled from fiscal 2017 to fiscal 2022, which logically corresponded to the stock price nearly quadrupling over the past five years. However, it is important to note that Apple's valuations have risen at a faster pace than its actual profits. At the conclusion of fiscal 2017, Apple's stock traded at $154.12 ($38.53 on a split-adjusted basis), equivalent to only 13 times the diluted EPS of $11.91 projected for fiscal 2018. Presently, Apple trades at 28 times forward earnings.
Apple's journey from $1 trillion to a $3 trillion market cap was propelled by both its EPS growth and the escalation of its valuations. The growth in earnings was driven by robust sales of iPhones (which still account for over half of its revenue), iPads, Macs, and the expansion of its services segment through the introduction of more subscription-based services. Simultaneously, Apple's valuations surged as more investors sought it as a safe-haven investment during times of market uncertainty caused by the pandemic, the Russo-Ukrainian war, inflation concerns, and rising interest rates.
It is worth mentioning that Apple's EPS typically grows at a faster rate than its net income due to its regular practice of share buybacks. Over the past five years, Apple repurchased approximately 19% of its shares and an astounding 38% over the past decade.
Achieving a $4 trillion market cap for Apple by the end of 2024 would require a nearly 40% increase in its stock price over the next 18 months. However, two factors make this goal challenging.
Firstly, analysts anticipate a 2% decline in Apple's EPS for fiscal 2023, followed by a 9% rise in fiscal 2024, and a further 10% growth to $7.17 per share in fiscal 2025. Assuming Apple continues to trade at 28 times forward earnings by the beginning of fiscal 2025, its stock would only experience a modest 9% increase, reaching approximately $200, resulting in a market cap just below $3.2 trillion.
Secondly, Apple's valuations are historically high, which means there is a possibility of a market downturn causing its forward multiple to drop to 20. If such a scenario unfolds, Apple's stock could decline to the mid-$140s, leading to a market cap of around $2.2 trillion.
Considering these factors and relying on analysts' estimates, which should be taken with caution, it appears unlikely that Apple will reach a $4 trillion valuation by the end of 2024. However, it's important to note that these forecasts do not account for potential unpredictable events that Apple may leverage to its advantage.
One such factor is Apple's upcoming release of the Vision Pro headset in early 2024, marking a significant hardware launch since the introduction of the Apple Watch in 2015. Although the high price tag of $3,500 may limit the initial appeal, a stronger-than-expected launch could lead analysts to revise their revenue and earnings estimates positively.
Additionally, Apple concluded its latest quarter with 975 million paid subscriptions across its various services, representing an 18% growth compared to the previous year. This substantial user base provides ample opportunity for Apple to introduce new apps and services.
Lastly, Apple still possesses $166 billion in cash and marketable securities, enabling potential investments and acquisitions. These could include media companies strengthening its services ecosystem or chipmakers developing its first-party chips.
Considering the uncertainties and potential opportunities outlined above, Apple's ability to achieve a $4 trillion market cap by the end of 2024 remains uncertain, yet subject to a range of strategic moves and unforeseen developments.
While many share the belief that Apple has the potential to reach a $4 trillion valuation in the future, it is unlikely to achieve this milestone by the end of 2024. However, investors must recognize the enduring strengths that Apple possesses.
Apple's ability to consistently generate stable growth, coupled with its devoted customer base and the ability to retain customers through its sticky services, are key factors that contribute to its long-term success. Additionally, Apple rewards patient investors through buybacks and dividends, which further enhances its appeal as a long-term investment opportunity.
It is important to focus on the intrinsic value and long-term prospects of Apple, rather than being solely fixated on its overall market worth. The company's solid track record and strong fundamentals make it a compelling choice for investors seeking stability and growth over an extended period, regardless of its exact market valuation.
As long as the price is above 175.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 184.37
- Take Profit 1: 190.00
- Take Profit 2: 200.00
Alternative scenario:
If the level of 175.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 175.00
- Take Profit 1: 170.00
- Take Profit 2: 164.00
