Combine a global pandemic, soft macro backdrop and a normalizing supply chain in Asia, and you have a recipe for disaster. Yet, Apple (AAPL) has weathered the storm in what Wedbush’s Daniel Ives describes as “Jacques Cousteau-like fashion.”
The tech giant’s services business delivered another strong performance during the lockdown period, with it on track to surpass $60 billion in annual revenues in full year 2021. It is set to experience a spike in demand over the coming quarters as well. In addition, AirPod sales have held up well and could approach 85 million units sold globally this year, up from 65 million last year. According to Ives, this growth “speaks to the unrivaled momentum of this wearables product along with the continued success of Apple Watch.”
Ahead of the virtual WWDC conference beginning on June 22, developers could also get a closer look at iOS 14, with several mobile upgrades related to VR and other software updates expected to launch during the coming year. Ives calls this event a “drumroll ahead of a major hardware release schedule ahead across the Cupertino product portfolio with iPhone 12 the main event and growth catalyst for the Street”, and while he isn’t anticipating any big surprises, the company may give hints regarding new products and R&D initiatives for VR and wearables/AirPods.
However, the implications of the 5G tailwinds and services momentum are essential pieces of the puzzle, in Ives’ opinion, noting that by the end of 2021, AAPL could be the first to see its valuation reach $2 trillion.
Expounding on this, Ives stated, “The services business we assign a $500 billion to $650 billion valuation range given the increasingly importance of this key revenue stream that is getting a new appreciation by investors during this lockdown as Cook & Co. further monetize its golden jewel installed base of what we estimate is currently close to 950 million iPhones worldwide. With roughly 350 million of these iPhones in the pent up ‘window of an upgrade opportunity’ we believe Cupertino has a unique opportunity to capture this delayed super cycle opportunity with a major 5G cycle on the horizon which will include a host of new smartphone versions/models for iPhone 12.”
Some investors have expressed concern regarding escalating U.S.-China tensions. China is projected to account for 20% of iPhone upgrades in the next year, but Ives doesn’t think there will be a material impact on the demand/supply trajectory of this product cycle.
As Ives thinks AAPL is the “best 5G play into the next year”, with the iPhone 12 slated for an October release, his bullish thesis remains very much intact. Along with an Outperform rating, the price target got a lift, from $350 to $375. Should this target be met, a twelve-month gain of 13% could be in store. (To watch Ives’ track record, click here)
Turning now to the rest of the Street, most other analysts are on the same page. With 27 Buys, 4 Holds and 1 Sell assigned in the last three months, the word on the Street is that AAPL is a Strong Buy. However, the $325.93 average stock-price forecast brings the downside potential to 2%.
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