Apple's (AAPL 3.12%) standing as one of the most dominant and culturally influential businesses on the face of the planet didn't happen overnight. The consumer electronics and software company has a successful history that spans many decades.
With this FAANG stock up more than 48,000% in just the last 20 years, it has undoubtedly turned some investors into millionaires. In fact, a $2,100 share purchase in February 2004 would be worth just over $1 million today (as of Feb. 5). What an impressive return!
But at a current market cap of $2.9 trillion and a price-to-earnings ratio of 29.2, can Apple help prospective investors become millionaires in the future?
Changing the business
The Apple of two decades ago is not the one investors are familiar with today. In fiscal 2003, the business generated the vast majority of its net sales from personal computers and laptops, like the Power Macintosh, PowerBook, and iMac. Apple released the third generation of its popular iPod product in the spring of that year, which was its hit hardware device at the time.
But no one could have predicted what happened soon after. Things changed in 2007, when the first iPhone was released. The iPhone was a revolutionary product that combined a phone, camera, and music player all in one easy-to-use device. Since then, it's been a meteoric rise for the company to becoming one of the most valuable in the world.
Even today, this single product is the most important part of the business, as the iPhone represented 58% of Apple's revenue in Q1 2024 (ended Dec. 31, 2023). And the company gets about 81% of its sales from all of its hardware devices. There's no more iPod, but there are AirPods and an Apple Watch these days.
However, there is another segment that is on the rise. Apple's services and software offerings, like iCloud storage, the Apple Music and Apple TV+ streaming services, and Apple Pay, are all gaining greater adoption, thanks in large part to there being 2.2 billion installed Apple devices all over the world.
Services revenue grew 12% in the latest fiscal quarter to $23.1 billion, about 19% of the company total. Since it carries an extremely high gross margin of 73%, as more of Apple's sales come from this segment, it can help to lift profitability. It's hard to envision, but the Apple of two decades from now could look completely different.
The future won't resemble the past
In my opinion, it's unreasonable to expect Apple to repeat its trailing 20-year return of 48,000% between now and 2044. The company is massive today, and the growth going forward might be limited. Sales actually dropped 2.8% in fiscal 2023, and only increased 2.1% in Q1 2024. You can blame the uncertain macro environment, but expecting Apple to grow like it did when it was much smaller is wishful thinking.
The iPhone still dominates the tech landscape, but it's a far more mature product today than even a decade ago. As was the case in 2004, bullish investors might be hoping for a new game-changing product release around the corner. But this is hard to predict.
It's valid to wonder whether Apple can beat the Nasdaq Composite Index going forward, let alone turn prospective investors into millionaires. As I noted above, the current valuation is expensive, now a huge premium to its trailing 10-year average. This isn't a bargain stock.
As a result, unless you have a large six-figure sum to invest in Apple shares right now, the chances of this being a millionaire-maker aren't great.
