Apple Inc (NASDAQ:AAPL) is on the cusp of reentering the exclusive $3 trillion market capitalisation club this week.
This would be the second time for the tech giant since it first crossed the threshold in January 2022, despite navigating numerous challenges including disruptions in the China supply chain and a softer macroeconomic environment over the past 18 months.
This renewed success is baffling for Apple sceptics, many of whom predicted a slowdown in Apple's growth this year due to challenging market conditions.
On the contrary, investment bank Wedbush sees a considerable growth renaissance for Apple over the coming 12 to 18 months.
Substantially underestimated
Analysts at the bank believe that market analysts have substantially underestimated the impending upgrade opportunities with the iPhone 14 and the imminent iPhone 15 mini super cycle, with around a quarter of Apple's core customer base not having upgraded their iPhones for over four years. Accordingly, Wedbush maintains its 'outperform' rating for Apple, with a price target of $220.
Apple's robust business strategy is further highlighted by the projected growth in its annual services revenue.
According to Wedbush, by FY24, Apple's services revenue could be approaching an impressive $100bn, exhibiting double-digit growth. This marks a substantial increase from the $50bn-plus it made in services revenue in 2020.
Growing services revenue is seen as the crucial factor in the reevaluation of Apple's stock, assigning a valuation of around $1.4 trillion to this segment alone. Consequently, they predict Apple's fair valuation could reach the $3.5 trillion mark, with a potential bull case of $4 trillion by FY25.
Beyond hardware
Apple's strategy extends beyond mere hardware and incorporates a broader vision of building a robust application ecosystem, as demonstrated by the recent Vision Pro product cycle launch.
While the new product grabbed headlines, Wedbush believes that the significant story lies in the plans for a new app store around this new form factor. Positive developer feedback suggests that Apple's already strong position with developers is likely to increase, leading to further expansion of the App Store.
Further boost
Wedbush anticipates this product and application build-out to provide another boost to services revenue in FY25, as more consumers explore the mixed reality headset and the Vision Pro price points start to drop significantly.
The investment bank firmly believes that this is just the first step in Apple's strategy to construct a generative AI-driven app ecosystem, catering to its loyal customer base with numerous applications across fitness, health, sports/movies, in collaboration with partners like Disney, and many other emerging areas.