Apple (AAPL 4.08%) has the largest market cap of any company trading on U.S. markets at a whopping $2.28 trillion. Wedbush analyst Daniel Ives predicts that the company still has a long runway. In a note to clients last week, Ives made this bold pronouncement: "We believe the path to Apple hitting $3 trillion in market cap is now firmly on track over the next year."
In this video clip from Motley Fool Live, recorded on Jan. 28, "The Wrap" host Jason Hall and Fool.com contributors Danny Vena and Dan Caplinger discuss the catalysts that could drive Apple shares higher and whether the stock will reach this ambitious watermark over the coming year.
Jason Hall: Let's do a little over, under action here. Danny Vena reported on Apple's earnings for us yesterday. Blow-out quarter, $111 billion in revenue. Most profits ever. The 5G iPhone is a huge hit. Their services business is growing. Wedbush analyst Dan Ives, has covered the company for years, says Apple is on track to be the first $3 trillion company on U.S. markets sometime over the next year. That implies about 26% upside from today. Danny Vena, are you taking the over or the under on Apple's stock price being 26% higher in a year?
Danny Vena: I'm going to take the path of least resistance, considering the fact that Apple stock is up. It was up 80% last year. It's up several percentage points already this year. Looking at the accelerants that are going on right now, the iPhone is probably going to be a two-year refresh cycle. So we're going to see a lot of iPhones purchased over the next couple of years. I think the more iPhones there are, the more services business is going to grow. You put those two things alone together, I think you get more than 26% upside over the coming 12 months. So I'm going to say over.
Hall: Dan Caplinger, what do you say, buddy?
Dan Caplinger: I'm going under, and I'm going to point out, it's not that I don't believe in Apple and I'm a big fan. I've got an iPhone myself, I own shares. But one thing I'm going to latch onto here, it's a little bit different.
In order for Apple to become a $3 trillion company, the value of its outstanding shares needs to go up by a total of 26%. One of the things that you said, "hey, that means the share price has to go up." But actually, I think that share price is going to have to go out more than that and that's because Apple's buying backup boatload of shares to the tune of, I just looked it up, $80 billion last year.
So if it is retiring those shares and making them no longer available in the float, then your question becomes, does that take that out of the market cap or not? I can't remember for sure whether it takes it out of the market cap or not once it is bought back. I'm just going to say, Apple's had two really good years in a row. It's going to have good business, but everybody knows it's going to have good business. I'm just going to the roll dice and say no, I will go under and Danny, I'll buy you a beer next time, hopefully we will have a conference where we get together face to face. If I'm wrong, then I'm buying. If you're wrong, maybe you can buy.
Hall: So to add that much market cap guys, it's got to add a Berkshire Hathaway-and-a-half.
Could it do it? Sure it could do it. I think it added close to last year or more. Again, that's just a contextual thing. The law of large numbers, blah blah, yaddity, yaddada. Money's cheap.
It's an excellent company, incredible company. I love my iPhone, my wife loves hers. We've got a house full of iPads. I think the services businesses is going to nail it. It's going to continue to grow. But I'm going to take the under here. I'm going to take the under, it's going to go up 25.5%.
Caplinger: That's two beers for Vena if he wins. Awesome.
Hall: There we go. Well, I'll drink the beers and we can get Danny some soda. How about that? That will make me happy.