Can a Tech Giant Really Be Underrated?

Apple, Inc. (NASDAQ: AAPL), the most valuable company in the world with a market capitalization of $3.59 trillion, continues to defy the odds by staying relevant at a time when technological advancements have taken the world by storm. Apple stock is up 356% in the last 5 years, which trumps the performance of other big tech companies such as Alphabet Inc. (GOOG), Microsoft Corporation (MSFT), and Meta Platforms (META). Apple’s revenue has grown from $265 billion in 2018 to $383 billion in 2023 while net income has increased from $59.5 billion to $96.9 billion during the same period. In addition to this strong financial performance, substantial stock buybacks – average annual stock buybacks worth $88 billion since 2018 - have played a key role in lifting Apple shares higher.

How Do They Do It?

Apple’s continued success boils down to a few factors. Product innovation, which includes the launch of 5G-enabled iPhone devices, has played a crucial factor. The launch of the iPhone 12 series in 2020 marked the beginning of a new supercycle in smartphone upgrade cycle worldwide with consumers embracing the first 5G-enabled smartphones designed by Apple. This helped boost Apple’s market share. After slumping to 10% in 2018, Apple’s share of the global smartphone market has risen to more than 16% today aided by this consumer enthusiasm behind 5G-supported iPhones.

Apple’s strategic focus on the services sector has also been a key growth driver in recent times. This segment records revenue from App Store sales, licensing, Apple Care subscriptions, iCloud, and Apple Music. Apple’s services segment revenue has grown from $39.75 billion in Fiscal 2018 to $88.3 billion in 2023, becoming the fastest-growing business segment of the company.

Looking To The Future

Apple, despite its massive scale, is continuing to venture into new business segments, opening new doors to grow. According to Morgan Stanley, the Apple Intelligence unit, which focuses on AI, will be a growth catalyst in the next decade. AI integration is expected to drive iPhone sales higher in the coming years, with Morgan Stanley expecting Apple to ship a record 500 million iPhones in the next two years. Morgan Stanley analysts Erik Woodring, Maya Neuman, and Oluebube Udochukwu recently revised their Apple price target to $273 from $216. Loop Capital analyst John Donovan also believes that Apple will emerge as a consumer AI giant in the coming years similar to how it succeeded with the rise of social media by focusing on Internet-connected mobile phones 15 years ago. Earlier this week, the analyst boosted his Apple price target from $170 to $300, highlighting the growing optimism for Apple among Wall Street analysts.

Dilantha DeSilva does not have positions in this company. Stocks.News has positions in Apple.