Barron's: 94% of Apple's $3 trillion market capitalization is to Cook's credit

Apple's revenue and profits have room to rise further.

On Monday (January 3), technology giant Apple (AAPL) rose to $182.85 in the intraday, becoming the first public company with a market capitalization of $3 trillion. Apple closed up 3 percent at $182.01 on the day.

Founded in 1976, Apple's market capitalization reached $1 trillion for the first time in 2018, and $2 trillion in August 2020, two years later. This time, Apple's market capitalization reached $3 trillion in just 15 months.

Apple is up 34 percent in 2021 and 81 percent in 2020.

Microsoft (MSFT), which rose 58 percent in 2021, is now in second place with a market capitalization of $2.51 trillion, with three other companies with a market capitalization of more than $1 trillion being Alphabet (GOOGL), Amazon (AMZN) and Tesla (TSLA).

Tim Cook has been succeeding Steve Jobs as CEO for more than a decade, and Apple's stock has risen 1,474 percent since Cook took office, with about 94 percent of its market capitalization accumulated during Cook's tenure.

Multiple factors have driven the stock price higher

Apple's recent rise in stock has been driven by a number of factors. First, the latest iPhones are in strong demand. Analysts have dismissed the iPhone 13 series as a transitional product, arguing that it is less important than Apple's first iPhone 12 to include 5G, the first to include 5G capabilities, but Wall Street seems to underestimate the demand for the iPhone 13 (as much as it did that year). In particular, it is worth mentioning that the demand for the iPhone 13 in the Chinese market has been at an all-time high, which may give Apple a boost to the performance of the fiscal quarter ending December 2021.

For the fiscal fourth quarter ended Sept. 30, 2021, Apple achieved revenue of $83.4 billion, up 29% year-over-year. Revenue from the iPhone was $38.9 billion, up 47% year-over-year, and revenue from the services business was $18.3 billion, up 26% year-over-year. Revenue from Macs was $9.2 billion, revenue from iPads was $8.3 billion, and revenue from wearables such as Apple Watch and AirPods was $8.8 billion in the quarter.

Wall Street analysts expect Apple's fiscal 2022 revenue to be $382 billion, and revenue is expected to further increase to more than $400 billion in fiscal 2023.

Second, due to the growing demand for Macs and iPads, Apple has become a safe haven for tech investors at a time of increased stock market volatility, which is another reason why Apple's stock price has risen in recent days. Although production and life have gradually normalized, consumer demand for Apple products is still strong.

Third, Apple continues to buy back shares aggressively, a shareholder-friendly policy that has also been a reason for the rise in its stock price in recent years. If investors could only choose one long-held technology stock, many would choose Apple.

Fourth, Apple unexpectedly gained support in legal affairs. Previously, the U.S. district court asked Apple to modify the App Store policy, allowing developers to embed third-party payment links in the app, and after Apple appealed, the appeal court said that it did not need to modify the policy for the time being.

One last and perhaps most important reason is that Wall Street has begun to incorporate Apple's augmented/virtual reality (AR/VR) headsets and self-driving cars, two businesses that have yet to release new products, into Apple's financial and valuation models.

Wall Street continues to be bullish, with a maximum price target of $210

Morgan Stanley analyst Katy Huberty recently wrote in a research report that Apple has been innovating, but the upcoming new products do not seem to be reflected in the stock price." Huberty recently reiterated his "overweight" rating on Apple and raised his price target to $200 from $165.

TFI Securities analyst Ming-Chi Kuo has been tracking down a research report on Apple's upcoming AR/VR headset. He expects Apple's AR/VR headset sales to reach 1 billion in the next 10 years. He believes that such products will eventually replace the iPhone as the most important online experience for many people.

Bernstein analyst Toni Sacconaghi said in a research report on Apple's role in the metaverse that the hardware access space in the virtual world may be dominated by a handful of large companies, just like the PC, mobile phone and tablet markets. Sacnaji said a rough estimate is that AR/VR devices will account for 4% of Apple's revenue by 2030 and more than 20% by 2040.

Mark Zuckerberg may be the one who talks the most about metaverses, but Apple under Tim Cook may be the biggest winner.

J.P. Morgan recently raised Apple's 2022 price target from $180 to $210, which is currently the highest target price given by Wall Street.

Samik Chatterjee, an analyst at the investment bank, said that although the growth of Apple's services business and iPhone 13 has been strong, there is still room for further growth in revenue and profits, and the current stock price will not stop there, but will continue to rise. Chatejee listed Apple as its 2022 stock of choice.

Chatterjee believes that one of the potentially important drivers of Apple's growth in 2022 is the launch of Apple's cheapest 5G phone, the iPhone SE, which may prompt a large number of fruit powder upgrades to 5G phones, and is expected to attract Android users who want to buy 5G phones.

| Barron's Eric M. Eric J. Savitz and Sabrina Escobar

Edit | Guo Liqun

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