As the stock market continues to soar, one question looms large: how can we justify Apple’s staggering $3 trillion valuation? It’s no secret that the tech giant relies heavily on two markets that have reached their saturation point: smartphones and PCs. In fact, when Apple reports its latest results in early August, we can expect a decline in revenue compared to the previous year.
Despite this, Apple’s stock is trading at an impressive 29 times the expected profits for the September 2024 fiscal year, with a valuation that is seven times its forward sales. To put this into perspective, Apple would need to generate an additional $150 billion in sales—equivalent to the combined sales of IBM and Oracle—to reach a mind-boggling $4 trillion market cap, assuming it maintains these multiples.
So, what keeps investors believing in Apple’s potential? After all, it has proven to be the ultimate buy-and-hold investment in history. But amidst this ongoing debate, perhaps we should shift our focus from “what” Apple will invent next to “where” it should go next.
In a recent research report, prominent Morgan Stanley analyst Erik Woodring—who is bullish on Apple—boldly suggests that the key to the company’s future growth lies in India. Woodring predicts that over the next five years, India will contribute to 15% of Apple’s revenue growth, ultimately accounting for 20% of its total installed base of device users.
While Apple’s reliance on the saturated smartphone and PC markets raises concerns about future growth, this visionary move towards India presents a glimmer of hope. It challenges us to reconsider where Apple can navigate next and reminds us that sometimes, the path to success lies in unexpected territories.
As the saga of Apple’s valuation continues to captivate the financial world, perhaps this shift towards India could hold the key to unlocking a new era of growth for the tech giant. Only time will tell if this bold strategy pays off for Apple and its investors.
India: Apple’s Next Growth Frontier
The analyst observes that India, surpassing China as the world’s most populous country, has contributed only 2% to Apple’s revenue in the past five years, amounting to approximately $6 billion. In contrast, China has accounted for about 18% of Apple’s revenue during the same period, generating a staggering $75 billion annually.
However, with the thriving Indian economy and Apple’s strategic investments in the country, this gap is expected to narrow significantly. With the establishment of its first stores, local manufacturing capabilities, and accessible financing options for iPhones, India is poised to become Apple’s next major source of growth.
Woodring predicts that Apple’s revenue from India will reach $40 billion by the end of the next decade. Additionally, he anticipates that by 2032, India will represent 10% of Apple’s global user base. Woodring asserts that India will play a role in Apple’s future comparable to that of China in recent years.
Reflecting his increasingly optimistic view of Apple’s position in India, Woodring has raised his target price for Apple to $220 from $190, with a “bull case” scenario of $270. If this projection materializes, Apple’s market capitalization would soar past $4 trillion on its journey towards $5 trillion. One cannot help but speculate about what lies beyond for Apple.