While Apple (NASDAQ:AAPL) is only down about 15 percent, the selloff has created a potential opportunity for investors looking to invest alongside Warren Buffett. Before buying, though, it’s important to take a look at the long-term potential of the company. Where will Apple be in 5 years?
What Will the Next Five Years Hold for Apple?
Over the next five years, Apple appears to have a great deal going for it. To begin with, Apple is starting to move in the direction of a subscription business model.
Rather than buying iPhones and other Apple hardware products outright, users could simply pay a monthly fee. In effect, this would allow users to “subscribe” to their hardware products. The upshot of this pivot for Apple, of course, is a large, recurring stream of monthly revenue.
While the product has largely matured, the iPhone also promises to be an important part of Apple’s growth for the next several years.
Newer, more expensive models offer Apple the ability to generate more revenue from each sale. Due to the iPhone’s established dominance, it’s unlikely that Apple will see its flagship product lose significant, if any, market share anytime soon.
Apple is also expected to introduce a mixed-reality headset sometime early next year. This will allow Apple to become a leader in the rapidly growing augmented reality and virtual reality markets.
By 2026, the global augmented reality market is expected to be worth over $88 billion. By leveraging its ability to develop and market hardware to consumers, Apple could become a dominant force in this expanding tech niche.
While the company has shown little interest in it until recently, cloud computing is another area of opportunity for Apple.
As Apple builds out its own infrastructure, the company will be in a good position to offer cloud services to third-party businesses. Amazon and Microsoft have seen high margins from their cloud business segments, and cloud computing is a natural area for Apple to break into.
A final and potentially massive growth driver for Apple in the next few years could be advertising. With its gigantic and highly engaged customer base, Apple is in a prime position to generate revenue with ads on its platforms and devices. This ability is currently underused, but advertising could generate as much as $20 billion in revenue for the company by 2025.
How High Could Apple Stock Go in 5 Years?
Based on these developments, it’s very likely that Apple’s stock will continue its upward trajectory. The company’s expected annualized growth rate over the next five years is 9.48 percent.
Using today’s price of $150, Apple shares would reach about $236 in five years if the stock price advances at the same rate. Note that this assumes no share dilution or stock splits.
A somewhat more conservative estimate can be found in a recent Morgan Stanley analysis. Based on the higher revenues the subscription business model is expected to bring in over the long-term, this analysis suggested a share price of $200.
This would give the company a total valuation of about $3 trillion. While conservative, this projection still demonstrates that Apple could be a good choice for long-term investors focused on safe, steady growth.
It should be noted that analysts expect Apple to perform very well over the next 12 months. The median target price for Apple is $180, up 23.5 percent. If Apple reaches this target, it’s likely that the projection of $200 within five years will end up being on the low side.
Another point that’s worth considering is Apple’s habit of pursuing share buybacks. In April, Apple announced that it would repurchase another $90 billion worth of its own shares. As such, investors can reasonably expect ongoing price support from continued buybacks.
All told, the combination of new product opportunities, the revenue hardware subscriptions will bring in and ongoing share buybacks should push Apple stock markedly higher in the coming years. A range of $200-250 seems reasonable on the 5-year time horizon, though changes in earnings or market conditions could obviously push the stock further up or down.
Apple Risk Factors
While Apple has obviously done an excellent job of managing its risks historically, investors should consider the company’s potential pitfalls in addition to its strengths.
Today, the ability to sell is Apple’s largest risk factor. With inflation beginning to squeeze consumers’ budgets, expensive hardware like the iPhone 14 could become less popular. The subscription hardware model should help with this problem, but ongoing inflation could ultimately squeeze Apple’s sales.
Supply chain issues could also put downward pressure on Apple’s growth. As 2020 and 2021 showed, Apple is uniquely susceptible to global supply chain disruptions. While supply chains have normalized since then, Apple still appears to carry certain risks in this area.
Most notably, the company is heavily integrated with Chinese suppliers, potentially exposing it to regulatory and geopolitical risks. Earlier this year, for example, the shutdown of Shanghai as part of China’s ongoing zero-tolerance COVID-19 policy badly disrupted Apple’s hardware production.
Is Apple a Good Stock to Buy Today?
In spite of its risk factors, Apple appears to be a solid buy for the next five years. While the company’s highest growth years are likely behind it, Apple remains an incredibly strong company that is likely to see its stock price rise steadily in the coming years. Following this year’s selloff, Apple appears to be an attractive buy for long-term growth investing.
Investors who buy Apple today may also be able to take advantage of the company’s shift toward a dividend-supported approach to rewarding shareholders.
Apple’s dividend yield is currently quite low, but the payout is growing rapidly. Over the last three years, Apple has raised its dividend at an average rate of 6.27 percent. Assuming this trend continues, investors who buy and hold Apple will likely see both strong returns and a decent stream of dividend income.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.