Where will apple be in 10 years

Where Will Apple Inc. Stock Be in 10 Years?

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NASDAQ: AAPL

Apple Inc.

After rallying more than 900% over the past ten years, where will the tech giant’s stock head over the next decade?

The headwinds facing Apple ( AAPL 2.28% ) today are well known. Sales of the iPhone, iPad, and Mac are all declining. The Apple Watch, a market leader in smartwatches, hasn’t become a meaningful source of revenue yet. The company’s software services are growing, but they still can’t offset the importance of the iPhone, which generated over half its sales last quarter.

Most importantly, Apple has arguably become a follower instead of an innovator. The Apple Watch wasn’t a big leap over other smartwatches, the iPad Pro resembles Microsoft‘s Surface Pro, and the dual cameras on the iPhone 7 resemble the Leica-designed dual cameras on Huawei‘s P9.

Image source: Getty Images.

Apple stock looks cheap today at 12 times earnings, but where will it head over the next decade? Let’s discuss Apple’s upcoming products, the headwinds it faces, and the stock’s valuations to find out.

What’s next for Apple?

Apple is currently trying to grow its services revenue — from Apple Pay, Apple Music, Apple Care, iTunes, licensing, and other services — to reduce its dependence on hardware. Last quarter, its services revenue rose 19% annually to $5.98 billion, or 14% of its top line. That represents solid progress from 12% of revenue in the previous quarter and 9% of revenue in the prior year quarter.

As for hardware, Apple hopes that it can sell more iOS devices to enterprise customers to offset its stagnant growth among mainstream consumers. Enterprise partnerships with IBM, Cisco, and other tech giants are helping it gain more traction in cloud-based work and collaboration apps.

Apple is also reportedly developing augmented reality (AR) apps and virtual reality (VR) headsets, which could give it new hardware to challenge Facebook‘s Oculus Rift or Microsoft‘s Hololens. Its long-rumored «Project Titan» could launch a self-driving electric car by 2021. Its recent $1 billion investment in Chinese ride-hailing app Didi Chuxing, which subsequently acquired Uber China, highlights its growing interest in the connections between mobile devices and connected cars.

These are all high-growth markets. Tech M&A advisory firm Digi-Capital estimates that the AR and VR markets will respectively grow to $90 billion and $30 billion valuations by 2020 — compared to practically nothing in 2015. Boston Consulting Group believes that the driverless car market could also grow from nothing today to $42 billion by 2025.

These efforts will also be expensive. Apple will likely spend $10 billion on R&D this year, up 30% from 2015 and more than triple what it spent four years ago. But with $18 billion in domestic cash and equivalents and $215 billion overseas, it has plenty of room to pursue new investments and acquisitions.

The headwinds it faces

However, Apple also faces massive headwinds as it diversifies away from hardware. Alphabet‘s dominance of search and mobile operating systems, Facebook’s dominance of social networking, Amazon‘s strength in cloud platforms and e-commerce, and Microsoft’s resilience in the enterprise market could make it tough for Apple’s software platforms to gain ground.

Major battle lines are already being drawn in connected cars, smart homes, virtual reality, payment systems, cloud storage systems, location-based services, and streaming media. These battles will intensify as Apple expands its ecosystem. Apple will also likely need to build its own data centers to declare cloud independence from Google, Amazon, Microsoft, and others so it doesn’t continue funding its top rivals.

Moreover, Apple must figure out what to do with its overseas cash. If it doesn’t repatriate that cash to the U.S. soon, it risks funding buybacks with debt in a higher interest rate environment. If it repatriates, it will be hit by a massive tax bill of at least 35%. Meanwhile, regional governments like those of the EU, which recently demanded that Apple pay nearly $15 billion in taxes to Ireland, could make it much tougher to stash its cash overseas.

So where will Apple be in 10 years?

Over the next five years, analysts expect Apple’s earnings to grow at an average rate of 7.85% per year. This means that by the fifth year (2021), Apple could post earnings of about $12 per share. Apple’s P/E ratio has bounced between 10 to 18 over the past five years. Based on a midpoint P/E of 14, Apple stock could be worth almost $170 by the end of 2021.

Assuming that Apple continues to deliver 8% growth over the following five years, it could post earnings of about $18 per share by 2026. Based on a P/E ratio of 14, a reasonable price for Apple by then would be about $250.

However, long-term analyst forecasts, especially for tech companies, can be extremely inaccurate due to disruptive developments. Sales could accelerate once new software and hardware products arrive, but they could also plunge if those efforts flop. Therefore, it’s impossible to know exactly where Apple stock will be in ten years — but investors should still keep a close eye on these growth opportunities.

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Where Will Apple Inc. Stock Be in 10 Years?

The headwinds facing Apple(NASDAQ: AAPL)today are well known. Sales of the iPhone, iPad, and Mac are all declining. The Apple Watch, a market leader in smartwatches, hasn’t become a meaningful source of revenue yet. The company’s software services are growing, but they still can’t offset the importance of the iPhone, which generated over halfits sales last quarter.

Image source: Apple.

Most importantly, Apple has arguably become a follower instead of an innovator. The Apple Watch wasn’t a big leap over other smartwatches, the iPad Pro resemblesMicrosoft‘s Surface Pro, and the dual cameras on the iPhone 7 resemble the Leica-designed dual cameras on Huawei‘s P9.

Apple stock looks cheap today at 12 times earnings, but where will it head over the next decade? Let’s discuss Apple’s upcoming products, the headwinds it faces, and the stock’s valuations to find out.

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What’s next for Apple?

Apple is currently trying to grow its services revenue — from Apple Pay, Apple Music, Apple Care, iTunes, licensing, and other services — to reduce its dependence on hardware. Last quarter, its services revenue rose 19% annually to $5.98 billion, or 14% of its top line. That represents solid progress from 12% of revenue in the previous quarter and 9% of revenue in the prior year quarter.

As for hardware, Apple hopes that it can sell more iOS devices to enterprise customers to offset its stagnant growth among mainstream consumers. Enterprise partnerships with IBM, Cisco, and other tech giants arehelping it gain more traction in cloud-based work and collaboration apps.

Apple is also reportedly developingaugmented reality (AR) apps and virtual reality (VR) headsets, which couldgive it new hardware to challenge Facebook‘s Oculus Rift or Microsoft‘s Hololens. Its long-rumored «Project Titan» could launch a self-driving electric car by 2021. Its recent $1 billion investment in Chinese ride-hailing appDidi Chuxing, which subsequently acquired Uber China, highlights its growing interest in the connections between mobile devices and connected cars.

Microsoft’s HoloLens. Image source: Microsoft.

These are all high-growth markets. Tech M&A advisory firm Digi-Capital estimates that the AR and VR markets will respectively grow to $90 billion and$30 billion valuations by 2020 — compared to practically nothing in 2015. Boston Consulting Group believes that the driverless car market could also grow from nothing today to $42 billion by2025.

These efforts will also be expensive. Apple willlikely spend $10 billion on R&D this year, up 30% from 2015 and more than triple what it spent four years ago. But with$18 billion in domestic cash and equivalents and $215 billion overseas, it has plenty of room to pursue new investments and acquisitions.

The headwinds it faces

However, Apple also faces massive headwinds as it diversifies away from hardware. Alphabet‘s dominance of search and mobile operating systems, Facebook’s dominance of social networking, Amazon‘s strength in cloud platforms and e-commerce, and Microsoft’s resilience in the enterprise market could make it tough for Apple’s software platforms to gain ground.

Major battle lines are already being drawn in connected cars, smart homes, virtual reality, payment systems, cloud storage systems, location-based services, and streaming media. These battles will intensify as Apple expands its ecosystem. Apple will also likely need to build its own data centerstodeclare cloud independence from Google, Amazon, Microsoft, and others so it doesn’t continue funding its top rivals.

Moreover, Apple must figure out what to do with its overseas cash. If it doesn’t repatriate that cash to the U.S. soon, it risks funding buybacks with debt in a higher interest rate environment. If it repatriates, it will be hit by a massive tax bill of at least 35%. Meanwhile, regional governments like those of the EU, which recently demanded thatApple pay nearly $15 billion in taxes to Ireland, could make it much tougher to stash its cash overseas.

So where will Apple be in 10 years?

Over the next five years, analysts expect Apple’s earnings to grow at an average rate of 7.85% per year. This means that by the fifth year (2021), Apple could post earnings of about $12 per share. Apple’s P/E ratio has bounced between 10 to 18 over the past five years. Based on a midpoint P/E of 14, Apple stock could be worth almost $170 by the end of 2021.

Assuming that Apple continues to deliver 8% growth over the following five years, it could post earnings of about $18 per share by 2026. Based on a P/E ratio of 14, a reasonable price for Apple by then would be about $250.

However, long-term analyst forecasts, especially for tech companies, can be extremely inaccurate due to disruptive developments. Sales could accelerate once new software and hardware products arrive, but they could also plunge if those efforts flop. Therefore, it’s impossible to know exactly where Apple stock will be in ten years — but investors should still keep a close eye on these growth opportunities.

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Where Will Apple Stock Be In 10 Years?

Will Apple stock trend higher or lower over the next decade?

Leo is a tech and consumer goods specialist who has covered the crossroads of Wall Street and Silicon Valley since 2012. His wheelhouse includes cloud, IoT, analytics, telecom, and gaming related businesses. Follow him on Twitter for more updates!

Over the past ten years, Apple (NASDAQ:AAPL) stock has soared nearly 1,300% thanks to robust demand for the iPhone and iPad, which together accounted for 71% of the company’s top line last quarter. Between fiscal 2004 and 2014, Apple’s annual revenue soared 2,108% to $182.8 billion.

But looking ten years down the road, things look murkier for Apple. After Steve Jobs passed away in 2011, Apple merely refreshed and fragmented its core products for three years. Its first new device under CEO Tim Cook, the Apple Watch, won’t arrive until next year.

Therefore, is Apple a stock that investors should hold until 2024, or is it one that should eventually be sold?

Apple’s biggest weakness
The biggest problem for Apple is its lack of product diversification. In the fourth quarter of 2014, it relied on iPhone sales for 58% of its revenue. Although iPhone revenue rose 21% year-over-year thanks to the launch of the iPhone 6 and 6 Plus, it’s a growth trajectory that will be tough to sustain over the next ten years.

Source: Compiled by author from Apple 4Q earnings.

The moment that iPhone sales stop rising, Apple stock will tumble. To prevent that from happening, Apple encourages brand loyalty by tying all app and media purchases to an Apple ID, ensuring that iPhone users think twice before switching to an Android device. That strategy, enhanced by the iPhone’s premium appeal, pays off. In July, Morgan Stanley’s Alphawise tracker found that 90% of iPhone users stick with Apple, compared to a 77% retention rate for Samsung.

While Apple’s retention level is impressive, it’s hard to say if those customers will remain loyal ten years from now. If interest in the iPhone wanes and Apple reduces its average selling price to compete with Android devices, it will lose its premium appeal. Google‘s (NASDAQ:GOOG) (NASDAQ:GOOGL) expanding ecosystem, which is now reaching into cars and homes, could also convince new smartphone buyers that Android phones are simply better suited for a Google-dominated world.

Apple’s walled garden
Apple has been beaten before. Back in the 1980s, Microsoft (NASDAQ:MSFT) crushed Apple by releasing its operating systems on IBM clones manufactured by a wide variety of companies. Today, Google is using the exact same play by encouraging hardware manufacturers to install Android on mobile devices.

Both Microsoft and Google’s strategies cornered Apple into its own walled garden. When the market favors Apple, that’s a defensive advantage, since Apple’s OS and hardware remain unique to the company. But if Apple products fall out of favor, the company gets stuck with proprietary hardware and software platforms that fewer developers are willing to develop software for.

For now, Apple has nothing to fear. Rising iPhone and Mac sales are easily offsetting declining iPad sales. Its iOS App Store has 1.2 million apps, compared to Google Play’s 1.3 million apps. But if sales of iPhones and Mac started declining, Apple’s own walls will prevent it from aggressively expanding the way Microsoft and Google can do through software.

Apple’s lack of innovation
Under Jobs, Apple was a fierce growth stock. Under Tim Cook, Apple became a mature one which entertained Wall Street demands by buying back shares (funded by debt) and paying dividends.

Apple has also started reacting to market trends, rather than defining them. The iPad Mini, the iPhone 5c, the iPhone 6 Plus, and the Apple Watch are respectively reactions to 7-inch tablets, cheap Android phones, phablets, and smartwatches. That’s the key difference between Jobs and Cook — Jobs boldly introduced products that the public didn’t know they wanted yet, but Cook launches products based on existing market trends.

The iPhone and iPad were both widely criticized prior to their launches. Back in 2007, Bloomberg’s Matthew Lynn said the iPhone was «nothing more than a luxury bauble that will appeal to a few gadget freaks.» Prior to the launch of the iPad in 2010, GamesRadar’s Mikel Reparaz predicted that the tablet would bomb due to its high price, clumsy touch controls for games, and the fact that «tablet PCs are already in wide use by serious visual artists.»

Instead, the iPhone and iPad easily crushed the smartphones and tablets that came before. By comparison, the Apple Watch doesn’t come close to «crushing» Android Wear or other wearable devices.

The ten year plan
A lot can change over a decade. That’s why Apple isn’t a stock that investors should buy and simply hold forever. Its business has some incredible strengths, but it also has glaring weaknesses.

If Apple can’t properly diversify its top line and iPhone sales slip, the stock could falter. If Apple subsequently boosts buybacks and dividends to placate shareholders, it could tie up the cash it needs to make major acquisitions. Most importantly, investors should remember that Apple’s walled garden can both help and hamper its long-term growth. However, if Apple successfully rolls out new products, the stock could soar higher as the Apple brand expands beyond phones and tablets.

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