Shares of Apple Inc., the world’s largest tech company, recently hit a fresh record high, putting it on the brink of an unprecedented $3 trillion valuation. According to Citigroup Inc., however, Apple still has room to rally another 30%, despite already seeing a significant surge in shares. Atif Malik, an analyst at Citigroup, initiated coverage of the iPhone maker with a ‘Buy’ rating and set a $240 price target, the highest amongst Wall Street analysts. Apple shares have already risen between 45-51% since the beginning of 2023, closing on Thursday at a record $189.59. In extended trading, the stock rose an additional 0.2-0.3%, nudging it closer to hitting the $3 trillion market cap milestone.
Undervalued Growth Prospects
Malik suggests that Wall Street is underestimating Apple’s potential for continued gross margin expansion. The growth is expected to be driven by a shift towards higher-end iPhones, complemented by further market share gains in the key markets of China and India. Additionally, Apple’s strategic navigation through the current macroeconomic slowdown and inflationary pressure on consumer spending is gaining market share from Android phones. According to Malik, these factors combined hint at a higher future valuation for the tech giant. Apple Inc. currently holds buy ratings from 68% of the firms tracked by Bloomberg, with Citigroup’s recent ‘Buy’ rating adding to the consensus. However, this percentage is somewhat lower than other mega tech companies. Microsoft Corp. and Alphabet Inc. enjoy ‘Buy’ ratings from over 85% of analysts, while Amazon.com Inc. boasts a striking 94% recommendation.
FY2023 Performance and Outlook
Despite experiencing a 2.5% slip in its top line to $94.84 billion in the fiscal second quarter ending in March 2023 due to higher-than-expected iPhone sales of $51.33 billion, Apple remains a powerhouse in the tech world. It’s worth noting that the company’s key services business — which includes Apple Pay, iCloud, and Apple TV — rose 5.5% to $20.91 billion. This suggests a robust and diverse revenue stream that could boost Apple’s valuation even further.
Significant Role in the NASDAQ’s Performance
Apple’s stock gains this year have been instrumental in the NASDAQ’s year-to-date gain of around 30%, marking the best first-half start to any year since 1983. This is a testament to the enormous influence of the so-called ‘Big Tech’ stocks, which Bank of America has aptly christened ‘The Magnificent Seven.’ Last year, Apple issued a negative net total of $89.402 billion in shares, incorporating its regular buybacks, and a net negative total issuance of $39.07 billion over the first three months of
Key Milestones and Future Potential
The shares of Apple were last valued at over $3 trillion in early January 2022, when the stock traded at $182.86. At that time, more Apple shares were outstanding, boosting its overall value. Apple crossed the $2 trillion threshold in August of 2020, nearly two years after becoming the first U.S. company to breach the $1 trillion mark. This significant increase was largely due to a surge in iPhone and Mac sales linked to the global pandemic.
Analysts believe Apple’s remarkable ability to generate revenue, not only from its product sales but also from its services sector, holds the key to its future valuation re-rating. As per Dan Ives of Wedbush, Apple is playing chess while others are playing checkers. The tech giant is on track to approach an annual service revenue of $100 billion in the current financial year, growing in double digits, a significant jump from the roughly $50 billion+ of service revenue in FY20.
As Ives pointed out, “Herein lies the key to the valuation re-rating that we believe will continue to take place around Apple’s stock as the Street further appreciates the sheer massive potential of this services revenue.” He assigns a valuation in the $1.4 trillion range to this aspect of Apple’s business alone and believes that Apple’s fair valuation could be in the $3.5 trillion range. With a bullish outlook, he expects a $4 trillion valuation by FY25.
In summary, Apple Inc.’s current market performance and future growth projections present a promising picture. The company’s adeptness at navigating macroeconomic pressures and its potential to expand its gross margins continually suggest a strong upside. While the company’s stock has already seen an impressive rise in 2023, analysts believe that Apple has room for further growth. The tech giant’s continued innovation and dominance in the market are expected to drive this growth, making it a compelling investment choice for the future.
Even as Apple shares reach record highs, competition in the tech industry remains intense, especially with companies like Nvidia topping the $1 trillion market cap.