Apple (NASDAQ: AAPL) is off to a mediocre start in 2024. The tech giant received a couple of analyst downgrades recently owing to potential weaknesses in iPhone demand, patent-related lawsuits, and a potential antitrust suit by the Justice Department. Nevertheless, there was some relief for Apple investors after Bank of America Securities analyst Wamsi Mohan upgraded the stock from neutral to buy and also hiked the price target to $225 from $208. The upgraded price target points toward a 16% jump from current levels, and Apple’s stock price jumped following Mohan’s note.
The BofA Securities analyst pointed out that Apple could benefit from a couple of strong tailwinds in the form of an iPhone upgrade cycle and the upcoming Vision Pro headset. According to Mohan, the growing adoption of additional artificial intelligence (AI) features in smartphones could drive a multiyear upgrade cycle for Apple’s biggest product — the iPhone. The question remains: will this catalyst be enough to drive solid gains for investors over the next five years? Let’s explore.
The Road So Far: Apple’s Past Performance and Market Dynamics
Shares of Apple have seen an impressive 393% surge in the past five years, significantly outpacing the S&P 500’s gains of 81%. A $1,000 investment in Apple stock half a decade ago is now worth almost $5,000. Meanwhile, Apple’s revenue has exhibited a compound annual growth rate (CAGR) of 7.6%, reaching $383.3 billion in fiscal 2023 from $265.6 billion in fiscal 2018. The company’s net income increased at a CAGR of just over 10% during this period, from $59.5 billion in fiscal 2018 to $97 billion in 2023.
Despite modest growth, the market has favorably rewarded Apple, which saw its earnings grow at a faster pace than the S&P 500’s earnings over the same period. The new growth drivers identified by BofA Securities could potentially help Apple outperform the S&P 500’s earnings again over the next five years.
AI, Smartphones, and Market Opportunities
The integration of additional AI features in smartphones is anticipated to become a pivotal growth driver for a market that has been under pressure recently. Investment bank Morgan Stanley predicts that global smartphone sales could rise, driven by new smartphones capable of running AI applications directly on the device instead of the cloud. The market for AI-enabled smartphones is expected to grow significantly, presenting Apple with a lucrative opportunity given its 20% share in the global smartphone market.
Moreover, Apple is in a solid position to capitalize on this trend, having increased its iPhone shipments in 2023 by 3.7% to 234.6 million units, overcoming the broader smartphone market’s decline of 3.2%. The company dominated the premium smartphone market with an impressive 71% share and has reportedly been exploring the integration of AI-focused features into its next-generation iPhones, further solidifying its position in the market.
Pricing Dynamics and Revenue Projections
Apple’s pricing power, coupled with the potential of AI-powered features, could lead to a growth in iPhone revenue. Despite accounting for just 20% of smartphone shipment volumes, Apple commanded 47% of the market’s revenue in 2023. With the global smartphone market expected to expand, Apple’s share could reach 25%, resulting in higher iPhone revenue. Assuming a heightened average selling price (ASP) for iPhones, Apple’s smartphone revenue is projected to surpass $500 billion in five years, indicating a substantial increase from the 2023 levels and paving the way for robust overall growth for the company.
Apple’s Promising Future: A Closer Look at Tech Stocks
Driving Growth with Innovation
Apple has long been synonymous with groundbreaking innovation, and as the tech giant delves deeper into its high-margin services business and explores the potential of AI-powered personal computers, a surge in growth seems imminent. The company’s trajectory over the past few years has been impressive, and there are strong indications that the next five years could see an even more dramatic upswing.
An Opportunity for Investors
For investors eyeing a lucrative opportunity, now might be the perfect moment to consider adding this tech stock to their portfolio. With Apple’s strong foothold in the market and the potential for an AI-fueled surge, there is a compelling case for significant upside. The company’s bold strides in innovation and evolving business strategies position it favorably for robust growth moving forward.
Considerations Before Investment
Before diving into investing in Apple, it’s essential to carefully evaluate the prospects. While the potential for growth is undeniable, it’s crucial for investors to conduct thorough research and understand the market dynamics. Analyzing the implications of such a move and the long-term outlook is paramount in making informed investment decisions.
Expert Insights
The esteemed analyst team at the Motley Fool Stock Advisor has identified compelling investment opportunities, with an eye on the future. While Apple didn’t make the list of their top 10 stock recommendations, the identified stocks hold considerable promise for substantial returns in the years to come. The Stock Advisor service, with its unmatched track record, provides a blueprint for success and valuable guidance for navigating the ever-evolving investment landscape.
Looking Ahead
As the potential of Apple’s high-margin services business and endeavors into AI-powered computing takes center stage, the company’s future shines bright. While investors weigh their options, the promise of significant growth in the tech industry cannot be overstated.