Will Apple $AAPL+0.2% be a $4 trillion stock by 2024?

Apple

AAPL

$217.96 $0.47 +0.22%

Capital Structure

Market Cap

3.3T

Enterpr. Val.

3.4T

Valuation

P/E

33.8

P/S

8.8

Apple's market capitalization has grown from $1 trillion in 2018 to $3 trillion in 2022.

Reaching a market capitalization of $4 trillion by 2024 could be very challenging.

New products, services, and acquisitions could help reach that milestone.

The principle of big numbers hasn't yet been demonstrated by Apple.

Apple ($AAPL) became the first publicly traded U.S. company to reach a market capitalization of $1 trillion in August 2018. In August 2020, it crossed the 2 trillion mark, and in January 2022, it became the first to reach the 3 trillion milestone.

Apple's market capitalization is currently around $3 trillion, but it is questionable whether it would maintain the two-year tradition and reach a market capitalization of $4 trillion by 2024. Let's look at its past growth, projected growth rate and valuation to decide.

How did Apple become a company with a market capitalization of 3 trillion? Between fiscal years 2017 and 2022 (which ended last September), Apple's annual revenue grew at a compound annual growth rate (CAGR) of 11.5%. At the same time, its adjusted earnings per share (EPS) grew at a downward CAGR of 21.6%.

In other words, Apple's annual EPS nearly doubled between fiscal years 2017 and 2022, so it makes sense that its stock price has nearly quadrupled over the past five years. However, Apple's valuation has grown faster than its actual earnings. On the last day of fiscal 2017, Apple stock traded at $154.12 ($38.53 on an adjusted basis), which was only 13 times the $11.91 diluted EPS it generated in 2018. Today, Apple trades at 28x forward earnings.

Apple's path from 1 trillion to 3 trillion has been paved by both its EPS growth and rising valuation. Its earnings growth has been fueled by strong sales of iPhones (which still account for more than half of its revenue), iPads, Macs, and an expanding services segment with more subscription services. Its valuation grew as more investors turned to Apple as a safe bet as the pandemic, the Russia-Ukraine war, inflation and rising interest rates rocked broader markets.

Apple's EPS typically grows faster than its net income as it buys back billions of dollars of its stock each year. It has repurchased 19% of its shares over the past five years and 38% of its shares over the past decade.

How could Apple reach a market capitalization of 4 trillion?

For Apple to reach a market capitalization of 4 trillion by the end of 2024, its stock would have to rise nearly 40% over the next 18 months. This could be very difficult for two simple factors.

First, analysts expect Apple's EPS to fall 2% in fiscal 2023, rise 9% in 2024, and reach $7.17 per share in fiscal 2025, a 10% increase. Assuming Apple continues to trade at 28x future earnings at the start of fiscal 2025, its stock would rise only 9% to about $200, giving it a market capitalization of just under $3.2 trillion.

Second, Apple's valuations are historically high, so I think its future valuation could fall to a multiple of 20 in the event of a market downturn. If that were to happen, Apple's stock could fall to around $140 and the market capitalization would drop to around $2.2 trillion.

Apple's planned launch of the Vision Pro headset in early 2024 will be its first major hardware launch since the Apple Watch in 2015. The high price of $3,500 could limit its initial appeal, but a stronger-than-expected launch could lead to increased revenue and profit estimates.

Apple also ended its most recent quarter with 975 million paid subscriptions across all of its services, an 18% increase over last year. This huge user base gives it plenty of room to launch new apps and services.

In addition, Apple still has $166 billion in cash and securities. It can use much of this cash for new investments and acquisitions (for example, in the media industry to expand its ecosystem of services or in chip makers for its own chips).

I believe Apple will one day reach $4 trillion, but I don't expect it to reach that milestone by the end of 2024. Rather, investors should focus on the fact that Apple generates steady growth, has strong customer loyalty, locks its customers into its ecosystem, and rewards its patient investors with buybacks of its own stock and dividends. All of these strengths make Apple an excellent long-term investment, regardless of how much the company is actually worth.