Apple stock predictions for 2020 and beyond
With the tech giant currently valued as the planet’s second most valuable listed company, we look at Apple stock predictions for next year and beyond
Shares in the iconic maker of iPhones and Macbooks were hovering around year lows at the beginning of 2019. Today, shares are hitting all-time highs. Should investors still buy into Apple? Let’s look into the factors that may influence the stock in 2020 and beyond.
What it’s worth
Established in April 1976, Apple was the first publicly traded company to break the $1 trn (€903bn, £760.3bn) market cap threshold in August 2018.
The current $1.2 trn (€1.08trn, £912bn) market capitalisation makes it the second most valuable listed company, after the Cupertino-based group relinquished its position to state-owned oil company Saudi Aramco on December 11.
Apple is so successful that it has twice the amount of cash than the US Treasury and is currently worth the capitalisation of four large US companies – JP Morgan Chase, Pepsi, Disney and Intel – combined.
The impressive stock performance has come despite falling earnings and revenues this year. In the year to September, Apple’s operating earnings slid 10 per cent to $63.9bn (€57.7bn, £48.6bn), far lower than the record $71.2bn (€64.3bn, £54.1bn) the company posted in 2015. Revenues fell 2 per cent as iPhone sales slowed down.
Apple’s business model relies on the tech giant’s ability to “own the consumer” by driving customers into its ecosystem and locking them in.
Apple’s products do not support other software or technologies, making them incompatible with other devices. This means customers have to exclusively purchase Apple apps or accessories to continue using their Apple products.
Meanwhile, when content owners and developers sell their digital content and applications via different Apple resources, they pay fees to the company.
Apple has been at the forefront of technological innovation and cutting-edge design in order to keep capturing consumers and market share despite selling products that are not wallet-friendly.
When the company removed the headphone jack from the iPhone 7 in 2016, it positioned the new smartphone at the core of its vision for a future without wires and cables. The decision was initially met with criticism, but quickly became the norm for most modern smartphones, which now lack that port.
Apple stock price history
Shares have made a strong comeback in 2019 after falling more than 8 per cent in 2018. The stock has risen close to 72 per cent in the year-to-date, outperforming shares on the Dow Jones index.
The tech giant has gained more than $400bn (€361bn/£304bn) of market capitalisation so far in 2019, as investors sought “safe-haven” investments amid market turmoil.
“People are looking for certainty in an uncertain market,” said Michael Kagan, a portfolio manager with ClearBridge Investments in New York. “Investors love that Apple generates so much cash flow – it’s a cash machine even though it’s a relatively mature business.”
The gains are all the more striking because financial results in 2019 marked a rather undistinguished year in the history of Apple.
Apple stock predictions 2020
Apple’s flagship product, the iPhone, continues to account for close to 50 per cent of the company’s total sales. The latest iPhone 11, priced at $699 (€631/£531), will be a key revenue driver for the next 12 to 18 months.
However, other products are set to support revenues next year. too.
New health-focused features – for example, apps that monitor the heart rhythm and blood sugar levels – are bolstering sales of Apple's smartwatches. Some health insurers in the US have even started to subsidise the device, making it affordable for more people.
More than 105 million smartwatches will be sold annually by 2023, according to research firm IDC, up from 66.5 million in 2019. With a market share of roughly 50 per cent, Apple is expected to profit from the growth of this segment more than any other company.
Apple recently unveiled a “Pro” version of its popular AirPods wireless headphones that includes noise cancellation and better ear fitting. The device has received favourable reviews and early demand has been strong despite the hefty $249 (€225/£190) price tag.
Citigroup analysts says blockbuster sales of the tech giant's AirPods and Apple Watch products are likely to fuel higher-than-expected revenue and earnings during the holiday quarter. The investment bank has reiterated its buy rating on Apple and boosted its target price from $250 (€226/£190.3) to $300 (€271/£228)
Apple stock predictions beyond 2020
Apple has told investors that earnings in 2020 will mark a period of reinvigorated financial results, which in turn is expected to support shares beyond next year.
The company’s chief financial officer Luca Maestri has guided for an acceleration of growth from the performance in fiscal 2019.
“We feel very good ... about the iPhone ... and we do expect an improvement in our year-over-year growth rate on iPhone,” Maestri said. “Wearables has very, very strong momentum. The portfolio of services also has incredible momentum.”
Apple guided for revenue in its fiscal first quarter of 2020 to be between $85.5bn (€77.2bn/£65 bn) and $89.5bn (€80.8 bn/£68 bn) up from $84.3bn (€76.1bn/£64.1bn) in the first quarter of fiscal 2019.
There are also suggestions that further ground-breaking products are in the pipeline.
According to TF International Securities analyst Ming-Chi Kuo, who is well-known for his Apple product predictions, in 2021 Apple may release a new wireless iPhone that will be designed without a charging port.
Such an iPhone would likely be the most expensive model in Apple's line-up in 2021. The shift is part of an effort by the tech giant to further diversify its high-end iPhones from its other smartphones, according to Kuo.
The company is also reportedly planning to introduce iPhones in 2020 in new sizes that support 5G connectivity.
Apple has strengthened its non-hardware revenue streams with two new subscription services. Apple TV+ is an online subscription service that aims to rival established competitors like Netflix and Hulu, while Apple Arcade is a gaming subscription service.
Overall, Apple is diversifying its revenue base and moving away from depending on the iPhone. The company’s services segment, which commands higher margins, has been a key driver over the years and is expected to continue to grow at a strong pace.
Analysts at Bank of America say there is “significant” potential in the stock. They expect “relative outperformance” heading into the next iPhone cycle when Apple is widely expected to launch its first 5G smartphone.
The main question mark over Apple’s share price remains the ongoing economic conflict between the US and China. As an agreement between the world’s two largest economies has yet to be reached, Apple may be forced to absorb more tariffs from December 15.
While the tariffs are unlikely to hit product demand, Apple’s gross margins may face headwinds going forward. And an eventual escalation of the trade war could result into a market sell-off, which would drag the stock lower.
Analysts have estimated that the additional 15 per cent tariff set for December 15 would result in a 4 per cent hit to earnings per share, or roughly $0.50 in fiscal 2020. The question is whether Apple will fully absorb this tariff from iPhones and other hardware made at its Foxconn factory in China, or pass the incremental costs to consumers, which may modestly dent demand in the US.
Meanwhile, Apple’s competitors are catching up fast.
Microsoft’s Windows 10 operating system rivals MacOS in many aspects of usability, while voice assistants such as Alexa and Hey Google often offer better results than Apple’s Siri.
Dell, Lenovo and HP now offer compelling hardware designs for personal computers that are a far cry from their previous “grey-box” products.
On the smartphone front, Samsung and Huawei are pushing the boundaries of innovation with foldable devices.
Should you invest in Apple shares?
Wall Street analysts remain bullish, on the whole.
Apple has 27 "buy" ratings, 14 "hold" ratings, and seven "sell" ratings from analysts, with a consensus price target of $260.27, according to Bloomberg data.
Of the 41 analysts recently polled by Marketwatch, 19 rate the stock a “buy” and just five have a “sell” rating.
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