The start of a new year is the perfect time to make investment goals and reflect on how your portfolio has grown over the last 12 months. A sell-off in 2022 might have yielded disappointing results for the previous year, but if you bought the right stocks five-plus years ago you might still be up on your investments. Multiple tech stocks suffered considerable declines in 2022 but have maintained triple-digit growth rates over the last five years despite recent market declines.
For instance, Apple (AAPL 0.60%) shares fell 29% year over year. However, its stock has risen 197% since 2018. The iPhone company may have stumbled last year, but it continues to be a great investment for the long term, and is worth watching closely.
Here are two things the smartest investors know about Apple stock.
1. The value of services
Apple shares dipped 12% in the last month as Wall Street has grown uneasy over the company's reliance on China for its iPhone production. The iPhone was responsible for 52% of Apple's revenue in its fiscal 2022. So when a spike in COVID-19 cases in China prompted the country to introduce new restrictions that put strains on factory production, specifically the factory that manufactures about 70% of all iPhones, investors became justifiably concerned.
Apple has responded by making moves to withdraw from China completely, producing a portion of its iPhone 14s in India. The company has become incredibly motivated to transition its production line as soon as possible, with J.P. Morgan analysts estimating that Apple will move about 25% of all of its products by 2025.
While Apple undergoes a hefty and likely lengthy transition, a promising part of its business is services, which include platforms such as Apple TV+, Fitness+, News+, Music, Arcade, and iCloud. The subscription-reliant segment offers attractive profit margins and posted immense growth over the last few years, making up Apple's second-largest portion of revenue last year.
In fiscal 2022, services revenue rose 14% year over year to $78.1 billion, while iPhone revenue increased by 7%. Additionally, services reported a 71.7% profit margin, while the same metric for products came in at 36.3%.
The swift rise of services offers Apple an excellent opportunity to further diversify its revenue and take some pressure off its iPhone segment, especially while it moves out of China.
2. A venture into a new market
Revenue diversification brings us to the second point smart investors should know about Apple. Numerous reports, filed patents, and acquisitions over the last few years have revealed the company plans to soon move into virtual/augmented reality (AR/VR) with a new headset as early as 2023.
According to Grand View Research, the AR market was worth $25.33 billion in 2021, and is expected to see a compound annual growth rate (CAGR) of 40.9% until 2030. Meanwhile, the VR market will grow at a CAGR of 15% in the same period.
Apple will enter a market currently dominated by Meta and Sony with their respective VR headsets. However, Apple's expected AR features will likely differentiate it from the competition, with its potent brand further attracting consumers.
Almost since its founding, Apple has proven particularly skillful at entering new markets and quickly rising to dominance. Devices such as tablets, Bluetooth headphones, and smartwatches might not have experienced the same catapult into mainstream use if it weren't for the launch of Apple's versions.
In fact, in 2019, Apple Insider revealed AirPods on their own would be a $175 billion enterprise and the 32nd largest company in the U.S.
Given the company's past success in entering new markets, purchasing Apple stock could be an investment in the future leader of a supercharged industry.
Apple may have stumbled in 2022 and has a large hill to climb with a move out of China, but the company continues to be one of the most reliable long-term investments, with consistent demand for its products and a highly profitable services business.
