Apple (AAPL -0.35%) is the largest company in the world by market capitalization. That cap currently stands at just over $2.7 trillion and is nearly equal to the size of the economy of France, the world's seventh-largest country as measured by GDP (gross domestic product).
Just seven years ago, Apple's market cap hovered around $500 billion. It was robust demand for the company's products and a solid profit driver in the form of the services business that drove the tech giant's revenue and earnings over the years and led to a five-fold jump in Apple's market cap.
Apple's latest results for the second quarter of fiscal 2023 (ended April 1) suggest that the company isn't going to run out of steam anytime soon. It's on track to potentially hit a market cap of $5 trillion by the end of the decade. Let's look at some of the reasons why that could happen.
2 major catalysts could power Apple higher in the long run
The global smartphone market may have taken a big beating in the first quarter of the year, but that didn't prevent Apple from posting an increase in iPhone revenue. The company generated $51.3 billion in revenue by selling iPhones during the quarter, up slightly from the prior-year period's figure of $50.6 billion.
The iPhone was Apple's biggest source of revenue, producing 54% of its top line during the quarter. What's most impressive though is that Apple's iPhone revenue headed higher even though global smartphone shipments fell 14.6% year over year in the first quarter of 2023, according to IDC. What's more, the market research firm points out that Apple's shipments declined by 2.3%. However, Apple's relatively small drop compared to the overall smartphone market's decline helped it increase its share of the global market to 20.5% from 18% in the year-ago period.
Also, Apple's solid pricing power in the smartphone market helped it deliver an improvement in revenue. Consumer Intelligence Research Partners (CIRP) estimates that the average selling price (ASP) of the iPhone increased to $988 last quarter from $882 in the year-ago period. This 12% year-over-year increase in iPhone ASP is a testament to the fact that consumers are willing to spend more money on iPhones even at a time when the overall smartphone market is in turmoil.
It is also worth noting that Apple dominates the smartphone market's revenue and profits. According to Counterpoint Research, the iPhone cornered 48% of the smartphone market's revenue in 2022, along with a whopping 85% share of the profit. This goes to show how dominant Apple is in smartphones, and this is going to be a big tailwind for the company through the end of the decade.
Spherical Insights predicts that the global smartphone market could generate $947 billion in revenue by 2030, up from $520 billion in 2021. Even if Apple holds on to a 40% revenue share of the global smartphone market by 2030, its iPhone revenue could jump to nearly $380 billion annually. That would be a big increase over the $205 billion in iPhone revenue that the company generated in fiscal 2022.
Apple's focus on emerging markets could help it significantly increase iPhone revenue over the next seven years. CFO Luca Maestri remarked on the company's latest conference call that the iPhone "reached a March quarter revenue record, thanks to very strong performance in emerging markets from South Asia and India to Latin America and the Middle East."
The company sees long-term growth opportunities in these markets given the low share it has over there. For instance, Apple controls just 5.5% of the Indian smartphone market, which is expected to be worth $281 billion in 2028. Apple has been gaining momentum in India thanks to steps such as the opening of new retail stores, an increase in local production, and the addition of pocket-friendly devices that are increasing the iPhone's installed base.
The services business, on the other hand, benefits from an improvement in Apple's iPhone installed base. Services revenue increased to an all-time high of $20.9 billion last quarter, a jump of 5.5% over the prior year. The segment's growth was driven by the increasing adoption of Apple's services. The company reported that it had 975 million paid subscriptions across its range of services at the end of the previous quarter.
More importantly, Apple has added 150 million paid subscriptions in the past year. Its paid subscription count has nearly doubled in the past three years. The company's focus on adding new content to services such as Apple TV+, along with improvements in other areas such as Apple Pay and Apple Music, should allow it to continue increasing the size of its services business.
Apple got 22% of its total revenue from the services business last quarter, up from 20% in the prior-year period. This segment delivered a gross margin of 71%, compared to the 37% gross margin of the products business. So the growing influence of the services business on Apple's top line should help drive stronger profitability.
Why the company could be worth $5 trillion by 2030
The services business and the iPhone together produced just over three-fourths of Apple's total revenue last quarter. The higher margin profile of the services business, Apple's strong iPhone pricing power, and its growing presence in new areas should help the company sustain its robust momentum.
AAPL EPS Estimates for Current Fiscal Year data by YCharts
Analysts forecast Apple's earnings will increase at an annual rate of 8% for the next five years, though it may clock faster growth thanks to new catalysts that may come into play and expand its services revenue. But even if we assume Apple's bottom line grows at 8% annually through 2030, its earnings per share could jump to $11.30 per share at the end of the forecast period (using fiscal 2022's earnings of $6.11 per share as the base).
Multiplying the projected earnings with Apple's forward price-to-earnings ratio of 29.4 would translate into a stock price of $332. That would represent a 91% upside from current levels, which also tells us that Apple's current market cap of $2.7 trillion could easily exceed the $5 trillion mark by 2030. That's why investors who haven't bought this tech stock yet may want to do so, as it has already gained 33% in 2023, and it seems capable of sustaining its solid momentum.
