It took Apple 44 years to reach US$1 trillion and US$2 trillion in 2 years. With the acceleration of appreciation, it will reach US$3 trillion in about 16 months. The timing of buying Apple will never be bad. I believe it will become the first 3 trillion dollar company and then the first 4 trillion dollar company. In this decade, Apple has many catalysts that can continue to push up its valuation. Arget=”_blank”> artificial intelligence, AR, VR, and autonomous driving have only scratched the surface. Most of Apple’s market value is tied to mutual funds and index funds held in retirement accounts and pensions. At this point, only a catastrophic event can destroy Apple.
Since the last time I published an article about Apple on November 16, the stock price has appreciated by 20.19%, and the market value has continued to be tested with a valuation of 3 trillion US dollars.
Although the stock price is at a historical high, I am still bullish for many reasons. We are in the strongest quarter for Apple. Last year, the company generated $111.44 billion in revenue and $28.76 billion in net income.
In a recent earnings conference call, Apple stated that they will not provide revenue guidance for the first quarter of 2022, but said they expect revenue for each product category to increase year-on-year, except for iPad.
Apple also expects its gross profit to be between 41.5% and 42.5%. This is optimistic, because in the first quarter of 2021, Apple’s gross profit was 39.78% (44.33 billion U.S. dollars/111.44 billion U.S. dollars), and their profit margin was 25.80% (28.76 billion U.S. dollars/111.44 billion U.S. dollars).
In the first quarter of 2021, the iPad business is Apple’s smallest revenue division because it created 7.57% of quarterly revenue. The remaining four business segments contributed 92.43% of Apple’s revenue in the first quarter of 2021, and are expected to grow year-on-year. I think the safe forecast is that Apple can generate more than $115 billion in revenue in the first quarter of 2022 as the beginning of this year. . The increase in gross profit margin may also indicate that their net income conversion rate will also increase.
The standard slogan for investment is to buy low and sell high. Over the years, Apple has violated this concept, because the stock price has been continuously hitting higher highs. In the past few weeks, many high-growth companies have dumped, but Apple’s stock price has gone the other way, setting a record high when it almost reached a valuation of $3 trillion.
Some people put forward cases, thinking that Apple’s best days are over, but I firmly disagree with this view. In terms of innovation, Apple has always introduced the old and brought forth the new, and has realized the key success factors for bringing breakthrough products to the market. Apple has changed our lives and the music industry with iTunes and iPod. They have changed the way we communicate and use mobile technology with iPad and iPhone. Apple has changed the wearable technology industry with its Apple Watch because it has become the gold standard.
I don’t believe that Apple’s innovation is over. The combination of artificial intelligence, augmented and virtual reality, and autonomous driving will become the next business area to expand Apple’s revenue and profits.
Artificial intelligence can be a growth driver for Apple, but people did not consider its possibility
Many people do not regard Apple as an artificial intelligence company. Many people speculate that Siri has fallen behind Google Assistant and Amazon Alexa.
Siri is a heavy application of artificial intelligence, but over the years, Apple has implemented other artificial intelligence applications and functions in its device lineup. Many operating system upgrades have added features that work on their platforms, and these features are based on artificial intelligence and ML.
If you are familiar with Apple products, then Face ID, fingerprints, handwriting recognition, local sleep tracking, application library suggestions, translation applications, and voice recognition all use artificial intelligence. Apple has been quietly building the use of artificial intelligence and ML to create amazing experiences through applications, which we could not imagine 5-10 years ago.
Apple didn’t make headlines when it bought the company, but that doesn’t mean it didn’t happen. At the February shareholder meeting, Cook revealed that in the past six years, Apple has acquired about 100 companies. The companies Apple acquired are mainly artificial intelligence, virtual reality, augmented reality, maps and semiconductors.
From 2016 to 2020, Apple has acquired more companies in the field of artificial intelligence than Alphabet (GOOG) (GOOGL) and Microsoft (MSFT). Apple has a good record in creating new fields and providing breakthrough products. We are still in the initial stage of artificial intelligence, and Apple will become one of the leaders in the field of artificial intelligence consumption.
Many people are focusing on enterprise artificial intelligence and gathering and analyzing data. Although Apple has not yet shared its roadmap, it definitely has plans to monetize artificial intelligence on the consumer side. As artificial intelligence becomes more advanced, Apple will use it to make more popular products and create service-based artificial intelligence products to generate recycled revenue.
Many companies are focusing on implementing artificial intelligence and ML for enterprises in the enterprise market. But on the consumer side, there are not many companies that can compete with Apple. Only Google’s product lineup through Android can pose a threat to the ecosystem.
Apple’s investment over the years will not generate explosive revenue growth in the short term, but it may get a lot of returns in the second half of this decade. Apple can use its ecosystem to apply artificial intelligence technology to healthcare or connected applications and the future AR/VR market.
For decades, Apple has been a pioneer in new consumer products, and artificial intelligence has a huge opportunity to help gain market share and sell future services to customers.
Since Facebook (FB) changed its name to Meta Platforms, attention to AR/VR has greatly increased. FB verified Metaverse, but before Metaverse, FB was the dominant force in the field of virtual reality through Oculus headsets. In 2020, the augmented and virtual reality market is valued at 14.84 billion U.S. dollars. This field is expected to grow at a compound annual growth rate of 40.7%, reaching US$454.73 billion by 2030. The increase in the mobile gaming industry and Internet connectivity is a key driver of the global AR and VR market.
Currently, the consumer market dominates the field, but over time, companies are expected to adopt these technologies and witness the greatest level of growth. AR and VR applications in the automotive, manufacturing, construction, extractive industries, aircraft, medical, education, law enforcement, and real estate industries are expected to experience high levels of adoption. Bank of America (BAC) raised Apple’s stock from US$160 to US$210 on December 14 after they called their AR/VR headsets a game changer.
There are several reports that Apple will launch AR glasses and VR helmets in 2022. Apple is a pioneer and trend leader in the hardware field. Apple is very good at separating itself from the competition. Apple has a complete ecosystem, from operating systems to virtual AI assistants. Their service departments include Apple TV+, Apple Music, Apple Store, Apple Fitness+, Apple News, App Store and Facetime. Apple is in the first place to create the next generation of computing and build a VR environment that encompasses these aspects.
Over the years, we have learned that Apple did not enter a space to play a secondary role, they entered a field to take over and dominate. On December 27, it was reported that Apple hired Andrea Schubert from FB, who was once the communications and public relations director of FB to be responsible for their augmented reality products.
Since its release, I have owned an Oculus Rift, and I believe we have not even touched the surface of AR and VR. I’m not sure if you can quantify its potential, because AR and VR can change the way we interact with technology.
Apple has proven that it can create new markets and generate sustained revenue growth through services and wearable devices. In the past three years, the annual service revenue has increased by 28.66 billion U.S. dollars (72.11%). In this fiscal year, 2021 will contribute 68.41 billion U.S. dollars (18.7%) to Apple’s overall revenue. In the past three years, Apple’s wearable device family and accessories have grown by US$21.02 billion (120.91%).
As Apple launches AR and VR products, I believe it will drive revenue growth in these two categories. Apple’s AR and VR products will generate initial revenue from hardware sales and additional recurring revenue from specialized services. Apple has always been at the forefront of innovation, regardless of whether some people are willing to admit it. AR and VR products will eventually become mainstream and completely change our technological experience, especially when so many companies allocate resources to Metaverse.
Self-driving cars may be an undervalued business area for Apple
Most of what we know is based on rumors and the lace information that Cook released during quarterly conference calls and speeches. Apple started work on the Titan project as early as 2014, when there were more than 1,000 engineers and automotive experts working on the development of electric vehicles. But this project seems to be shelved, and then in 2020, there are rumors that Apple is developing a fully autonomous car.
We understand that Apple’s head of artificial intelligence and machine learning, John Giannandrea, will be responsible for the Apple car project. In 2017, Cook spoke publicly on Bloomberg about focusing on autonomous driving systems. Recently, Bloomberg’s Mark Gulman broke the news that Apple has decided to devote itself to car projects and design a fully autonomous vehicle. This should scare Tesla (TSLA) because Apple legally has unlimited checkbooks and their free cash flow in 2021 exceeds $90 billion. Apple basically has unlimited resources to allocate, and Apple’s odds of winning are obviously very large.
Everything about the Apple car project is just speculation, because Apple has not yet provided a road map to the investment community. I think that Apple has adopted a multi-pronged approach in this area, but Apple is not interested in making cars. This is confirmed by a large number of reports that Apple discusses making cars with mature automakers. I believe that Apple will have an Apple car, manufactured by the current car manufacturer, and sold by that manufacturer and Apple. This will be the jewel in the crown, but I don’t believe it will become a source of income.
At its core, Apple is a software manufacturer because it has focused on operating systems for decades. I think Apple will create a complete self-driving software package, and they will sell this software package to automakers as a completely autonomous software package, from the internal Display to the sensors and software that control the car. Apple has prepared all the additional products, from voice-activated assistants to maps and entertainment.
I think that by selling autonomous software packages to automakers and controlling the interior of the vehicle, you can make more money. With Apple’s software and in-car displays, they will now have a driving experience. This will be another reason for people to increase Apple’s additional services.
I can hardly believe that Apple wants to directly compete with Tesla, Ford (F), General Motors (GM), BMW (OTCPK: BMWYY), Mercedes-Benz (OTCPK: DDAIF) or other large automakers. More money will likely be used to create a complete Apple upgrade package and allow current automakers to produce Apple version cars. When you can cooperate and own an Apple version of the car, why spend tens of billions to build a manufacturing plant and undertake procurement, distribution, and implementation work to compete with these companies?
If Apple can cooperate with a few large automakers, their autonomous systems can appear in more cars instead of independent production. In the end, I believe there will be a complete Apple car available on a limited basis, but we will see more Apple version cars, just like you would see AMG Mercedes-Benz. I will further speculate that Apple can apply its autonomous software to drones and automated robot delivery.
Apple is becoming a defensive company and it may take a catastrophic event to knock the stock price off its trajectory
No company is too big to fail, but Apple is definitely becoming a defensive company. Morningstar publishes a report on the flow of funds in the United States every month, and the amount of funds flowing into the fund continues to increase. Long-term mutual funds and exchange-traded funds collected US$81 billion in November 2021, and US$844 billion flowed into the fund in October. It is estimated that the net capital inflows into U.S. stocks in the TTM is 106.25 billion U.S. dollars. iShares Core S&P 500 ETF (IVV), Vanguard 500 Index (VFIAX), Invesco (QQQ), Fidelity 500 Index (FXAIX) and Vanguard Total Stock Market Index (VTSAX) are the funds with the highest estimated monthly net inflows in November.
Approximately 6.86% (US$198.16 billion) of Apple’s market value is directly linked to FXAIX, VTSAX, VFIAX, IVV and QQQ. When you add Berkshire Hathaway (BRK.A) (BRK.B) to these five funds, another 907,559,761 stocks worth $163.66 billion are tied to BRK.A’s assets and liabilities. On the table. More than 12.5% of Apple’s market value is held by FXAIX, VTSAX, VFIAX, IVV, QQQ and BRK.A.
Apple continues to go against the investment logic, because a company with such a large proportion of the S&P 500 should not see its business accelerate at the rate that Apple continues to experience. Apple was founded in 1976. After 44 years, it reached a historic milestone on August 2, 2018, becoming the first trillion-dollar company. Just over two years later, on August 19, 2020, Apple became the first company to reach $2 trillion. Less than 17 months later, Apple knocked on the $3 trillion door. With the inflow of individual retirement accounts and pension funds, more funds continue to enter Apple every month.
In previous articles, I wrote about how Apple resembles a growth company, even though it is the largest company in the S&P 500 Index. In 2021, Apple’s annual revenue increased by 91.3 billion U.S. dollars (33.26%). Due to an additional 47.88 billion U.S. dollars in 2021, Apple’s gross profit increased by 45.62%. Apple is also the most profitable company in the Standard & Poor’s 500 Index, because it generates a net income of US$94.68 billion. Apple is expected to achieve quarter-on-quarter revenue growth and set a new quarterly revenue record during the holiday season as they see strong demand for their products.
As Apple’s market value grows, its revenue, profits, FCF, and net assets managed by institutions also grow. Apple is the first company to reach US$1 trillion, the first company to reach US$2 trillion, and it has been hovering within the range of US$3 trillion for several weeks.
In the recent correction, Apple maintained its strength, keeping the market near historical highs when growth companies were eliminated. Nothing is too big to fail, but there is a huge motivation behind Apple, and I don’t see any obstacles that will break its long-term upward trend. At this rate, we can see $3 trillion in first-quarter earnings at the end of January and $4 trillion in March 2023.
Apple has plenty of long-term catalysts because they expect their biggest quarter in history this holiday season, setting the tone for another record year. In addition to current financial indicators, Apple also has new product categories for AR and VR, which are expected to debut in 2022, which may drive revenue from hardware and services. In addition to self-driving cars, Apple also has opportunities in artificial intelligence and ML.
Is it wrong to own an Apple? I still think that Apple is a stock that you buy when you can buy it, and it’s just a long-term hold. In the past nine years, Apple has returned $604 billion to its shareholders in the form of buybacks and dividends. In 2021, Apple repurchased 85.5 billion U.S. dollars of stock. In the past nine years, 464.2 billion was allocated to stock repurchases, which reduced the outstanding shares by 37.84% to 16.41 billion.
Apple has become the largest component of several of the most popular mutual funds and ETFs. As Apple has grown in size, its financial indicators have also grown as they continue to create new sources of revenue and generate billions of dollars in profits.
Apple also has several catalysts in the future, and I believe they will become the dominant player in Metaverse, AR, VR, AI, and self-driving cars throughout the 2020s. Even at historical highs, Apple’s stock is a screaming buying point, because history may repeat itself again and again.