Apple could be the first company in U.S. history to reach a trillion dollars in market capitalization by as early as 2018. According to top analysts such as Daniel Ives of GBH Insights, AAPL shares “could trade between $210 and $230 over the next year.” Currently AAPL is trading at $171 per share with a market cap of $880 billion. Even if Ives is being overly optimistic and Apple shares only climb to $195, or a 13% increase from today’s price, then that would still put the consumer electronics company’s worth at $1 trillion. Going from $171 to $195 may sound like a large return, especially for a company that already has a large market cap to begin with. However, since the beginning of 2017, AAPL stock price is up about 48%, from only $115 per share in January. It took Apple less than one year to grow in size by $290 billion, which is roughly the entire market capitalization of retail giant Wal-Mart. Given how Apple Inc can surprise investors like this, it is not hard to see how the share could reach $195 or higher by next year if the tech giant continues to deliver on its sales and earnings.
According to Ives, one factor that could push Apple into a trillion dollar valuation is the major upgrade cycle of the iPhone series. He says “the iPhone 8, 8 Plus and X launches will sell more than the peak iPhone 6 upgrade cycle. This would mean 258 million iPhone units for Apple’s fiscal year to the end of September 2018, exceeding the record 231 million shipped in the fiscal year ending September 2015.” Roughly 350 million iPhone users are using models that are at least two year old so a large group of these users are expected to upgrade.
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Apple continues to invest in research and development, hoping to find another hit product by the time owners of the iPhone 8 and X series are ready to upgrade their handheld devices. Apple is also in a good position to acquire other companies because it’s sitting on over $250 billion in cash, according to CNBC. This allows the company to add new technologies and products to its business through the acquisition of other companies such as buying Beats by Dre for $3 billion a few years ago.
Earlier this month earnings came out for Apple and the results were well received by investors. The company beat the street’s expectations on every basic number. And at 19 times current earnings, and 15 times forward earnings, the stock is not that expensive relative to the broader stock market. The current S&P 500 P/E ratio is over 20 times. The price/earnings (P/E) ratio essentially indicates the dollar amount an investor can expect to invest in a stock in order to receive a dollar of that company’s expected earnings. The lower the P/E multiple, the more attractive a stock is to buy, assuming all other factors are the same.
Apple has done an incredible job of convincing consumers that its products are the best. One risk often overlooked is that the technology Apple uses on its devices can be built by other competitors as well. But as long as Apple continues to succeed at marketing itself and selling iPhones, its stock price is poised for growth in the long run. Even Warren Buffett has shown interest in AAPL even though he usually doesn’t buy technology companies. Starting in 2016, Buffett’s company, Berkshire Hathaway initiated a relatively small position in AAPL shares. But later in 2017, Berkshire acquired a lot more and currently have over $100 million worth of AAPL. It can’t possibly be that bad of an investment when even the Oracle of Omaha is on board.
This author holds 21 shares of AAPL as of writing this post.