The NASDAQ-100 technology sector the index has more than doubled the return S&P 500 index over both the last one- and five-year periods, but apple (NASDAQ: AAPL) has been among the cream of the crop, rising by about 84% so far in 2020 and about 405% in the last five years.
These strong gains put Apple’s stock price at a premium rating of 34 times earnings estimates, which looks expensive compared to a forward-to-earnings multiple of 24 for the S&P 500.
However, Apple is currently entering one of the strongest product cycles in several years, which could keep the business buzzing together and justify the stock̵
1. Product sales could break records in 2021
Apple enters the new year after delivering a strong earnings report for the fourth quarter. While iPhone revenues were somewhat lower in the fiscal year 2020, sales of non-iPhone products increased 30% year-on-year despite restrictions on offers on iPad, Mac and Apple Watch. That momentum will continue into the first half of the 2021 calendar with recent product releases.
The new AirPods Max headphones have been sold out since the first release in December. Other recent launches will provide short-term sales recordings, including the HomePod mini, Apple Watch Series 6 and Watch SE, two new iPad models and new MacBooks with Apple’s internally developed M1 processor.
Early signs point to strong sales on the iPhone 12. Although 5G network coverage is stinging, it looks like customers are scooping up the new iPhone in record time, which is good news since the iPhone generates half of Apple’s total revenue.
Apple plans to increase production of the iPhone 12 by 30% in the first half of 2021, according to a report from Nikkei Asia who cited a source from a major Apple vendor. This will set Apple in motion to have its biggest year for iPhone sales since the record shipments to the iPhone 6 in 2015.
2. Apple’s M1 chip is a game changer
Apple made a bold move earlier this year by announcing a two-year transition to use internally developed processors for its Mac series, and releasing Intel chips in the process. The M1 chip has several features that will significantly enhance the user experience on the Mac and could lead to further market share gains in the PC market for Apple.
For many years, Apple has worked to bridge the user experience across the operating system for Mac and iOS. The M1 chip will take this a step further by letting Mac users run iPhone and iPad apps. This can be big for Mac sales in the long run.
By taking control of the development of its own chips, Apple can better plan its product map and tailor future versions of the M1 for specific user experiences, such as improved image processing, security and other cutting-edge features and technologies.
Apple is likely to unveil more benefits with the M1 chip over time, but by 2021, the significant increase in battery life and the ability to run iOS apps directly on Mac should be enough to encourage more sales of MacBooks.
3. Services growth
Despite double-digit percentage growth in subscription services, sales of hardware products still account for almost 80% of Apple’s total revenue. But with services growing 16% year-over-year in the last quarter, this $ 53 billion annual business could reach $ 100 billion over the next five years.
After reaching an installed base of 1.5 billion active units earlier this year, Apple reported that the installed base reached a record high in fiscal fourth quarter. New services – including Apple TV +, Arcade, News + and Apple Card – are attracting more users, and Apple continues to add new services and content to drive further growth.
Apple TV + continues to add new streaming content, which will be crucial in persuading users coming from their free trial periods that it’s worth paying the relatively low monthly fee of $ 4.99.
The recent launch of Apple Fitness + is another service with a lot of potential. Interactive fitness was already a fast-growing market before 2020, but it got an extra kick during the pandemic with more people looking for alternative training solutions at home. Nike and Peloton Interactive has reported high levels of engagement with their respective training apps lately. Apple’s huge installed user base will gain a decent share of this booming market.
Plenty of tailwind towards 2021
Apple is on the verge of a major upgrade cycle across all of its products. Furthermore, this upgrade cycle can be intensified as COVID-19 vaccines become available, encouraging more people to visit Apple stores as the year progresses.
With these growth catalysts on the horizon for this top-tech stock, Apple is well positioned to surpass in 2021.