O NASDAQ-100 technology industry index more than doubled the return of S&P 500 index over the past one and five year periods, but Apple (NASDAQ: AAPL) it has remained among the cream of the crop, growing about 84% so far in 2020 and about 405% over the past five years.
These staggering gains put Apple’s stock price at a premium valuation of 34 times future earnings estimates, which seems expensive compared to a future price-profit multiple of 24 for the S&P 500.
However, Apple is currently entering one of its strongest product cycles in years, which could keep the business running smoothly and justify the stock premium. Here are three growth catalysts to be seen in 2021.
Image source: Apple.
1. Product sales could break records in 2021
Apple enters the new year after reporting a solid earnings report for the fourth fiscal quarter. Although iPhone revenue fell slightly in fiscal 2020, sales of non-iPhone products grew 30% year over year, despite supply restrictions on the iPad, Mac and Apple Watch. This momentum is expected to continue in the first half of the 2021 calendar, with recent product launches.
The new AirPods Max headphones have been sold out since their initial launch in December. Other recent launches are expected to provide short-term sales momentum, including the HomePod mini, Apple Watch Series 6 and Watch SE, two new iPad models and new MacBooks with an M1 processor developed internally by Apple.
The first signs point to strong sales of the iPhone 12. Although coverage of the 5G network is patchy, customers appear to be buying the new iPhone in a record clip, which is great news, as the iPhone generates half of the company’s total revenue. Apple.
Apple plans to increase its iPhone 12 production by 30% in the first half of 2021, according to a report by Nikkei Asia who cited a source from a major Apple supplier. That would put Apple on track to have its biggest iPhone sales year since the iPhone 6 sales record in 2015.
2. Apple’s M1 chip is a game changer
Apple made a bold move earlier this year, announcing a two-year transition to using in-house processors in its line of Macs. Intel chips in the process. The M1 chip offers several features that will significantly improve the user experience on the Mac and can lead to greater gains in market share in the PC market for Apple.
Image source: Apple.
For years, Apple has been working to bridge the user experience in its operating system for Mac and iOS. The M1 chip will take this a step further, allowing Mac users to run applications for iPhone and iPad. This can be huge for Mac sales in the long run.
By taking control over the development of its own chips, Apple can better plan its product roadmap and adapt future versions of the M1 for specific user experiences, such as enhanced image processing, security and other cutting-edge features and technologies.
Apple is likely to reveal more benefits from the M1 chip over time, but for 2021, the significant increase in battery life and the ability to run iOS apps directly on the Mac should be enough to encourage more MacBook sales.
3. Growth of services
Despite double-digit percentage growth in subscription services, sales of hardware products still account for nearly 80% of Apple’s total revenue. But with services growing 16% year-over-year in the last quarter, that $ 53 billion annual business could reach $ 100 billion in the next five years.
Image source: Apple.
After reaching an installed base of 1.5 billion active devices earlier this year, Apple said its installed base reached another record in the fourth fiscal quarter. New services – including Apple TV +, Arcade, News + and Apple Card – are attracting more users, and Apple is still adding new services and content to drive growth.
Apple TV + continues to add new streaming content, which will be crucial in persuading users who leave their free trials that the relatively low monthly fee of $ 4.99 is worth paying.
The recent launch of Apple Fitness + is yet another service with a lot of potential. Interactive fitness was already a rapidly growing market before 2020, but it gained an extra boost during the pandemic, with more people looking for alternative exercise solutions at home. Nike and Peloton Interactive recently reported high levels of engagement with their training applications. Apple’s huge installed base of users is expected to gain a decent share of this expanding market.
Many favorable winds towards 2021
Apple is on the verge of a major update cycle in all of its products. In addition, this update cycle may intensify as COVID-19 vaccines become available, encouraging more people to visit Apple stores throughout the year.
With these growth catalysts on the horizon for this stock of cutting-edge technology, Apple is well positioned to overcome in 2021.