Now that 2020 is well underway, most investors have already moved on from the fact that the S&P 500 index rose nearly 29% and that the Nasdaq rose by 35% in 2019. It’s what the market can do in 2020 that matters. What was impressive above any of the major stocks is that Apple Inc. (NASDAQ: AAPL) posted a gain of 85% in 2019. Its run has continued in 2020 with a gain of 8.7%. It most recently closed at $319.23 a share, and many on Wall Street have rapidly increased their expectations for 2020, based on a coming iPhone supercycle and with Apple’s services on their way to becoming the next $100 billion category.
Wedbush Securities has been among the most bullish firms when it comes to Apple posting ever higher returns. When the firm’s Daniel Ives first posted a $350 price target on Apple, many analysts were still $75 or even $100 lower with their price targets. Now Ives is at it again, formally raising his price target to $400, currently a street-high target price.
It may seem amazing that Apple can keep running, with gains almost every day over the past couple of months. Its market cap is already $1.4 trillion, and a $400 target price implies another gain of just over 25%, before adding in its 1% dividend for total return investors. That also would imply close to a $1.75 trillion market cap for Apple if this $400 target price is achieved — and this call is a week before Apple reports earnings. Ives believes that Apple will handily beat consensus expectations, with a strong holiday season and solid iPhone 11 demand purchases.
While Ives had already laid out that Apple’s fundamentals could support a $400 target price, actually raising it is more impressive now that it is a formal price target. Ives said, “overwhelming positive data points we are picking up from the supply chain,” which Wall Street has underestimated for the magnitude of this 5G upgrade cycle. Ives also said:
Our recent Asia checks around iPhone 11 units look robust and coupled with “jaw dropping” AirPods momentum should lead to clear upside in the upcoming results with strong March guidance also likely on the horizon. While the stock has had a massive rally over the past year and thus far in 2020, we continue to believe this is a “must own” stock into what we would characterize as a transformational 5G super cycle over the next 12 to 18 months with Apple being our favorite 5G play. Our time spent in Asia last week gave us further conviction that this 5G super cycle is real and will be a major growth catalyst for iPhone sales both domestically as well as in China.
The iPhone install base is currently put at about 925 million iPhones worldwide, but roughly 350 million of those are said to be “in the window of an upgrade opportunity.” That upgrade cycle will include new smartphone versions and models for the iPhone 12, with at least five different iPhone versions set to launch this year. Ives also sees the coming 5G launch in September also having a number of versions, although the specs might not be known until April.
Wedbush did acknowledge that Apple’s monumental run might seem like all the good news has been priced into the shares. Ives’s answer to that is a “resounding NO.” The first part of the massive iPhone upgrade opportunity is expected to be the 5G supercycle, with 215 million to 220 million units expected for fiscal 2021 demand. Ives further noted strength from services, China and other issues:
Coupling this dynamic with a metamorphosis-like valuation re-rating by the Street around the company’s $50 billion+ annual services revenue stream is the 1-2 punch to how we ultimately see a stock in the $400 range by year-end. Looking out further, we believe by the end of 2021 Apple has potential to be the first $2 trillion valuation given the 5G tailwinds and services momentum potential over the coming years. Importantly on the China front, with our estimates that roughly 60 million to 70 million iPhones are in the window of an upgrade opportunity in this key region Cook & Co. are now on pace to convert at least half of these customers over the next few quarters. The services business we assign a $500 billion to $650 billion valuation range given the increasingly importance of this key revenue stream that is getting a new appreciation by investors as Cupertino further monetizes its golden jewel installed base.
Apple stock was indicated up with a 0.3% gain to $320.10 early Friday morning, and that would be above this week’s all-time high of $319.99.