Where Will Apple Stock Be in 5 Years?

Apple Inc (NASDAQ:AAPL) is the largest company in the world in 2021 with a market capitalization of over $2 trillion.

In fact, it’s the only company that stood above the $2 trillion mark in the first year after the March 2020 crash. That certainly made its investors from five years ago happy.

Share prices stood at $25.36 in January 2016, and they’re trading at over $100+ per share, for a 5x multiple in five years. This begs the question – where will Apple stock be in five years?

The 2010s were defined by technological progress that enabled a mobile-first world. Innovations in broadband and wireless bandwidth, automation, artificial intelligence (AI), and the Internet of Things (IoT) paved the way for the tech transformation of the post-pandemic economy.

In the 2020s, these advancements are underscored by a push to virtual work and school and a new way of life. Apple is a conglomerate with diversified revenue streams, including iPhones, iPads, wearables, PCs, and accessories, like Beats by Dre.

The company’s highest gross margins come from its services business though. It built an ecosystem that includes Apple Arcade, Apple TV+, Apple News+, Apple Pay, Apple Card, and Apple Cash.

It also earns revenue from app and in-app purchases made on its devices (although an Epic Games lawsuit could change that).

We run diagnostics to see if Apple can continue its growth spurt through the 2020s or if it will be dethroned by a member of the FANG index as the world’s most valuable company.

Apple Has A Giant Cash Problem

The biggest problem in Apple’s business is an excess of cash, and I’m aware that sounds counterintuitive. But consider that Warren Buffett hates holding onto too much cash, because it loses its value to inflation. Instead, the Oracle of Omaha recommends investing that cash into companies that can grow it.

Ironically, Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.A) is one of Apple’s largest shareholders with a 5.55 percent stake in the company. However, the company sold over 36 million shares in the third quarter of 2020 to lower its stake in the company.

Still, Apple closed the year with $191.83 billion in cash on hand, much higher than Berkshire’s record $137 billion. It can’t spend it fast enough – the company generated $64.7 billion in sales in its fourth quarter for the 2020 fiscal year.

Even after spending $22 billion in share buybacks and dividends and accounting for operating expenses, that still came out to $12.67 billion in profit. It’s down about $1 billion from the same quarter of the previous year but that also doesn’t include the company’s holiday product launches of the iPhone 12 and 12 Pro.

If the company can’t find better ways to allocate its cash into investments, it could lose out to rivals acquiring smaller tech companies with big value offerings in new lanes.

Apple Current Financial Multiples

Apple started 2021 trading around $125 per share, with a price-to-earnings ratio over 38x. Many analysts believe this P/E ratio could grow over 40x in 2021 as the price reaches over $150.00 per share.

There are two schools of thought as to whether this P/E ratio may be too high.

One is to compare it to long-time rival Microsoft Corporation (NASDAQ:MSFT), which is trading at a more modest 34x, and Alphabet Inc (NASDAQ:GOOGL), which trades slightly below that.

Each of these companies competes with Apple in its various lanes and could be a better value proposition to investors.

The other is to compare it to tech giant Amazon.com, Inc (NASDAQ:AMZN), with its investors paying a premium of over 90x trailing 12-month earnings. Both companies built streaming services and ecosystems powered by smart assistants and ecommerce.

And the Epic Games lawsuit could change the paradigm, crippling the revenue stream Apple grew the most over the past year. But it’s still innovating in other areas that investors may overlook.

The Apple Car Could Be A Game Changer

Tesla (TSLA) isn’t the only company working on an all-electric autonomous vehicle for consumers. Apple started working on its Project Titan vehicle at its Cupertino headquarters in 2014. At the time, Tesla CEO Elon Musk even considered selling his car company to the tech giant.

By December 2020, the company announced it could release a car within three to six years and is aiming for a possible 2024 release. This car will be a major factor in where Apple stands in 2025, as the merger of car and home technologies occurs.

Apple is rumored to be in talks with major auto manufacturers like Hyundai to sign a deal by March 2021 for production. And it’s working hard on next-level battery technology.

It’s also bringing much of its iPhone chip manufacturing in-house to help managed licensing costs it pays to companies like Qualcomm (QCOM).

These moves show a lean Apple that will look as different in 2025 as it does today when compared to 2005. That could be the year it experiences a mini “Tesla-like” stock surge.

Remember Apple’s iPod destroyed Sony’s Walkman. It’s iPhone killed Nokia. MACs crushed Dell’s market share. Apple TV+ squashed Quibi to compete with Netflix (NFLX) and Disney+. And the Apple Car could dethrone Tesla. It’s a powerful force for the 2020s.

Apple Vs FANG Stock Index

Perhaps the most powerful stock index on the market from 2010-2020 was the FANG index. Facebook (FB), Amazon (AMZN), Netflix (NFLX), and Google (GOOG) represent the next level of internet-based tech conglomerates taking on the old guard.

By now, they’re the old guard themselves and face some major problems in overtaking Apple or Microsoft.

Facebook, Amazon, and Google kicked 2021 off facing antitrust heat from regulators. Netflix should be so lucky as to hold a monopoly – instead, it lost much of its most popular content to Disney+ and Comcast-owned streaming services.

The FANG index took a major bite out of the market in the 2010s, but it could regurgitate those gains over the next five years through heavy regulation and competition.

Where Will Apple Stock Be In 5 Years? Summary

Apple stock fought hard over the past 40 years to become the world’s most valuable company on more than one occasion. It was the first company to reach $1 trillion market capitalization and the only remaining $2 trillion company in the pandemic economy starting 2021.

This has some naysayers predicting the company’s doom. But it has a large pile of cash and some of the hottest-selling devices on the planet. Its solid track record of innovation proves it has the mettle to beat the competition on every platform it faces them.

Its sticky sales platform and comprehensive ecosystem are enough to make Apple a $3 trillion giant by 2025.

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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.