Apple AAPL became the first U.S.-based publicly traded company to hit a $2 trillion valuation when its shares climbed 1.4% to $468.65 in mid-day trading on Wednesday, eclipsing the $467.77 mark needed to reach the milestone. The stock ended the day up 0.1% to $462.83, putting the company’s market value just below $2 trillion.
The stock has more than doubled from its Mar 23 low, backed by steady demand for the company’s devices and better-than-expected results in its core iPhone business even as the coronavirus outbreak disrupted the global economy and forced a complete lockdown.
Apple reported third-quarter fiscal 2020 earnings of $2.58 per share that increased 18.3% year over year while net sales increased 10.9% year over year to $59.69 billion.
The milestone is the latest for Apple under chief executive, Tim Cook who has expanded the company’s footprint in China and transformed its services business with App Store subscription revenues. The company also introduced Apple New+, streaming service Apple tv+ and Apple Music among others to generate steady growth.
The moves reflect growing investor confidence in Apple’s shift in focus from sales of iPhones and other gadgets to services for its users. Shares of the company have returned 57.6% in the year-to-date period and outperformed the S&P 500’s rally of 4.7%.
Year-to-Date Performance
Apple’s $2 Trillion Milestone Beating All Odds
While it took Apple 38 years to reach its first $1 trillion in value, the next trillion only took two years after the company rapidly expanded its hardware ecosystem with more iPhones and new Apple Watches and AirPods, launched digital services and leveraged its base of 1.5 billion devices to generate more recurring revenues.
The gains have solidified Apple’s position as the most valuable company in the world. While Saudi Aramco briefly boasted a $2 trillion valuation in December, shares of Saudi Arabia’s national oil company subsequently dropped. It currently trades with a market cap of about $1.8 trillion. Among U.S. companies, Apple is trailed by Amazon AMZN and Microsoft MSFT, both of which have market caps under $1.7 trillion. Google owner Alphabet GOOGL is also worth more than $1 trillion.
The past two years have not been easy for Apple. The iPhone-maker had to withstand the trade war between the United States and China, where most Apple devices are assembled. The company missed its holiday sales forecast in 2019 for the first time in nearly two decades, triggering a plunge in shares.
Besides, Apple had to close hundreds of retail stores due to the pandemic this year, and many employees were forced to work remotely. Currently, Apple’s App Store is under fire from regulators and developers who complain that the company charges high fees and limits third-party applications in favor of its own offerings.
In the midst of these disruptions, Apple launched iPad Pro, a lower cost iPhone and ran a virtual conference that introduced tools to support the next range of devices.
Growth Prospects Aplenty in 2020 and Beyond
To maintain the stock’s upward trajectory, Apple will need to generate more growth from hardware, while continuing to expand its services business.
The technology giant is reportedly preparing four new iPhones with 5G capability for this fall, three years after the launch of the iPhone X in 2017. Tens of millions of users who upgraded to the iPhone X are likely inching toward a new model, which could set up Apple for a large upgrade cycle over this holiday shopping season and into next year.
Apple’s wearables and hearables business is expected to be driven by solid demand for Apple Watch and Airpods despite increasing competition from the likes of Fitbit, Garmin, Samsung and China’s Huawei Technologies and Xiaomi Corp.
Additionally, this Zacks Rank #1 (Strong Buy) company is looking to further solidify its ecosystem with new accessories such as over-ear headphones, a cheaper smart speaker, and new iPads. Meanwhile, Apple is taking more control over the supply of key components like developing Macs with its own processors and future iPhones with its own cellular modems. You can see the complete list of today’s Zacks #1 Rank stocks here.
Moreover, Apple’s focus on autonomous vehicles and augmented reality/virtual reality (AR/VR) technologies presents growth opportunity in the long haul. Moreover, the iPhone-maker is also developing a pair of virtual and augmented-reality devices including a VR headset with some AR capabilities for release as early as 2022 and lightweight AR glasses that could launch as soon as 2023.
The new products could keep users locked into an ecosystem. Further, Apple is preparing a series of Apple One bundles to increase recurring revenues from services such as Apple New+, Apple Arcade, Apple Music, Apple TV+ streaming service and iCloud storage. The more recent push toward hardware and services subscriptions is particularly enticing for investors looking for steady income-generating businesses. (Read more: Apple May Launch Services Bundle as Early as October)
Apple now has more than 550 million paid subscribers across its Services portfolio, up 130 million year over year. The company expects to reach its target of 600 million paid subscriptions before the end of calendar 2020.
Besides the iPhone, which accounted for 44.3% of total sales in the fiscal third quarter, the performance of these non-iPhone segments will be eagerly watched by investors to measure the success of Apple’s revenue-diversification strategy.
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