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Can Apple Go Beyond $3 Trillion?

Published 12/13/2021, 03:01 PM
Updated 07/09/2023, 06:31 AM
Apple (NASDAQ:AAPL) is about to become the world’s first $3-trillion company, and the question facing investors in 2022 is could the party last?
  • AAPL is about to hit $3 trillion
  • Skeptics are concerned with valuation and regulation
  • The market is betting on the power of augmented reality
 
There are several good reasons for bears to be skeptical about the stock’s recent meteoric rise, not the least of which is valuation and regulation. AAPL is trading at the top of its valuation range, nearing the 30X P/E, while top line growth is anticipated to be a modest 4.5% in 2022.
 
Of greater concern to investors is possible regulatory oversight over the company’s monopolistic practices. So far AAPL has been able to avoid any ruling to force it to open up its Apple Store payment protocols to any third-party vendor that, in turn, would limit the company’s ability to collect a hefty 30% toll on any revenue collected.
 
But litigation continues through the courts, and it’s doubtful that Apple will escape completely unscathed. It will likely have to amend its terms with software vendors on the App Store platform.  
 
The much bigger issue from a regulatory standpoint is Apple’s close and secret relationship with Google (NASDAQ:GOOGL). Google pays Apple to make it the default search engine across all Apple products. And although neither company reveals the exact terms of the deal, analysts estimate that it could be as high as $15 billion in 2021 and could rise to $22 billion in 2022. 
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This is a massive chunk of change for Apple, almost all of which ends up as profit on its bottom line. According to some estimates, the Apple/Google deal is responsible for as much as 15% of AAPL’s annual profits. If either the U.S. or European authorities seek to overturn the exclusivity of the deal on anti-monopolistic grounds, the impact on the stock will be instant and severe.
 
Yet, for now, investors are ignoring the regulatory and valuation risks and are focusing on the next next thing, which in the case of Apple, is augmented and virtual reality.
 
It is believed that the company has more than a thousand engineers working on the project. I is expected to bring out its first set of products next year. Augmented reality, which superimposes digital images over a physical landscape, has long been viewed as the next big step in digital evolution, allowing for a far more immersive experience in education, repair, tourism, retail and even medical procedures.
 
Still, adoption has been slow and the market remains tiny. Analysts projected that augmented reality  would be a $100-billion business by 2020, but the reality is a far more modest $14 billion. 
 
The bullish bet on AAPL is contingent on the company bringing augmented reality into the mainstream in 2022 with a suite of software and hardware offerings that would make it highly compelling for consumers to adopt the technology.
 
If Apple succeeds, it will be at the forefront of yet another trillion-dollar business and will maintain its leadership role in consumer technology.
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This is the true reason for the run up in the stock. If it can deliver in 2022, then most of the bearish worries will evaporate as AAPL tries to achieve a historic feat of generating growth from its $3-trillion capital base.

Latest comments

Are turds generally brown?
have you not heard? stocks have become completely unmoored from reality! the sky is the limit! come join the party! dow 100K! apple will be at 7 trillion market cap in no time! what could possibly go wrong?
Apple's average PE Rato since 2010 has been 16 and it is currently trading at 32 (100% above its mean long-term averages). A large chunk of any profits made in 2020 & 2021 was from schools buying equipment for students or companies buying equipment for employees working from home. This won't repeat itself in 2022. The US trade war with China if anything is hotting up and not going away, Chinese economic growth is ?? (with again a large amount of Apple profits stemming from China).  You also have the new global tax agreement set at 15% which will take a big chunk out of Apple net profits in the next 2-3 years. Will Apple hit $3 Trillion in the long term? Yesss...should it hit or maintain a value of $3 Trillion in the short or medium-term? Or be anywhere near its current valuation with so many headwinds on the horizon? ...No!!!! (Fed Printing Press flooding the market with cash & indexed Funds increasing holdings as it increased in value are main reasons behind current valuation)
spot on you bloody tosser! i know you brits have your own slang but i felt it necessary to point out that hot is not a verb so hotting up doesnt make sense. say hi to the queen ...
 I am Irish not English? Bit slow mate? ;)
Look no further than the options market to find the reason for this parabolic run up in price. Pure manipulation by big players buying calls Monday with exp Friday same week. Creating gamma squeeze big time... These people have no interest in holding Apple stocks... Let's see what happens when the implied volatility makes this pump and dump scheme to risky... It's a copy of what happened to the Tesla stock, and AMD. Remember no good news came from Apple in this period. They actually warned about both supply AND demand issues now.
just wanted to point out the two examples you used - TSLA & AMD are not pump and dumps. while I agree with your analysis of Apple's run up being quite the same, the end result is not a dump. it's an overvalued stock that continues forward despite logical valuations. more of a pump and pump.... and further pump.
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