Apple (AAPL +1.50%) could have an epic year in 2023. To kick things off, it has already announced its new M2 Pro and M2 Max chips for its perennially popular MacBook laptop lineup, as well as the reintroduced HomePod smart home speaker. And, of course, an iPhone 15 is certainly coming in the second half of this year.
But the biggest item in the rumor mill that could really launch Apple higher is an augmented and virtual reality (AR/VR, or simply "MR" for mixed reality) headset. Is Apple stock a buy for 2023 ahead of this potentially game-changing news?
NASDAQ: AAPL
Key Data Points
An Apple MR headset: The long-awaited next big hit?
Apple has reportedly been working on a mixed reality headset for some time now, but speculation now holds that the company will host an official release event this spring. Bolstering the validity of this rumor last year, CEO Tim Cook spoke about problems with "the metaverse," likely in a marketing tactic to put down existing headsets on the market -- most obviously from rival Facebook parent Meta Platforms' Quest 2 and Quest Pro.
An Apple MR headset will apparently be able to toggle between real-world-view with a digital overlay and a fully immersive virtual experience, including using the headset as a display for a user's Mac or MacBook. And, as can be expected from Apple, a headset will go beyond just integrating with other Apple hardware. The company is also apparently working with media companies like Disney to bring 3D experiences to the MR device, and Apple TV is also reportedly getting some upgrades to support a more immersive viewing experience.
It's clear why Apple would want in on AR/VR, metaverse, Web3, or whatever "next-gen" computing experience term you'd like to apply here. The tech community is already immersed in digital workflows, so making this work more lifelike and efficient has actual real-world value. The kids these days also love binging TV and playing video games, so why not make it even more immersive?
Apple also needs a new hit if it wants to keep growing at a brisk pace. After all, there's only so much profit that can be squeezed from its current breadwinner, the iPhone, by designing new chips for it and for the MacBook lineup. At some point, investors will start demanding a new shot in the arm to keep the growth engine going, and MR could be just the right medicine.
|
Apple Revenue Segment |
Fiscal Year 2022 Revenue (12 Months Ended Sept. 2022) |
YoY % Growth |
|---|---|---|
|
iPhone |
$205 billion |
7% |
|
Services (software and subscriptions) |
$78.1 billion |
14% |
|
Wearables, Home, Accessories |
$41.2 billion |
7% |
|
Mac |
$40.2 billion |
14% |
|
iPad |
$29.3 billion |
-8% |
Data source: Apple.
Problems before the race has even started?
Getting an ambitious project like an MR headset ready for race day isn't easy, though. Apple has been working on augmented and virtual reality tech for years (Meta, to its unfair detriment, has been vilified for its transparency on how much it costs to launch a new computing device ecosystem). Not all of its efforts will pay off. Apple reportedly has shelved its AR glasses project in lieu of focusing its efforts on a cheaper follow-up headset to the one that will (hopefully) be announced this spring.
That's probably a good move, because reports indicate the first-gen Apple MR headset could cost as much as $3,000. That will be prohibitively expensive for widespread adoption -- especially when the Meta Quest 2 can be had for a few hundred bucks, and the Meta Quest Pro MR headset has a $1,500 price tag.
Nevertheless, Apple has an extensive ecosystem of devoted fans already using iPhones, MacBooks, Watches, and more. If any of those users get interested in MR, there's a good chance they'll take a look at Apple's new product. I expect an Apple MR device to start small, but it could steadily build into a lucrative business within a few years via headset sales and related services and software spending.
Is Apple stock a buy for 2023?
If you thought Apple stock was a buy after the company's final fiscal year 2022 earnings report a few months ago, not much has changed with the business itself since then. The iPhone is still hot, especially in new emerging markets. The Mac could have a great year if it can eat some market share from struggling laptops powered by Intel and AMD. And the iPad and wearable devices like the Watch could continue to put in steady results. Apple is also wildly profitable and is returning excess cash via stock buybacks. A new mixed reality device in 2023 would be gravy.
What has changed in recent months? Share valuation has become quite a bit more reasonable due to the bear market. Apple now trades for 22 times trailing 12-month earnings, and 21 times trailing 12-month free cash flow, as of this writing. Stay tuned for updates in early February after the first-quarter fiscal 2023 financial update. But at this juncture, this is still absolutely a wonderful business to build a portfolio around. Apple stock is a buy in my book.
