Apple (AAPL 0.27%) stock is trading up roughly 26% so far in 2024 (as of this writing), closely matching the 26.8% gains clocked by the S&P 500 index. Given this above-average (nearly) one-year performance, investors may be wondering if the world's largest company by market cap has room for more upside in the new year.
After all, the majority of Apple's businesses have already matured, and the company has been growing at a modest pace of late. For instance, Apple's revenue in the fourth quarter of fiscal 2024 (which ended on Sept. 28) increased just 6% year over year to a record $94.9 billion. Its adjusted earnings, however, increased at a faster pace of 12% to $1.64 per share (after excluding the one-time charge it incurred on account of the reversal of the State Aid decision by the European General Court).
NASDAQ: AAPL
Key Data Points
However, a closer look at Apple's latest quarterly results indicates that 2025 and 2026 may turn out to be better years for the company.
Apple seems set for stronger growth
In the last reported quarter, Apple delivered mid-single-digit revenue growth and double-digit earnings growth. However, the company's revenue for fiscal 2024 increased only 2% to $391 billion. Its earnings of $6.08 per share were lower than the preceding year's figure of $6.13 per share.
So, Apple recorded much faster growth in the final quarter of fiscal 2024. That can be attributed to the launch of the company's latest generation of iPhones, which went on sale toward the end of September. Apple's latest iPhone 16 models seem to have played a key role in helping the company increase its shipments by 3.5% year over year to 56 million units in the third quarter of calendar 2024, as per IDC.
It is worth noting that Apple's shipments increased last quarter while Samsung witnessed a 2.8% contraction to 57.8 million units. Samsung has been the leading player in the fast-growing generative AI smartphone market this year, so it looks like the launch of AI-capable smartphones by Apple has allowed it to make some inroads into this lucrative market.
This probably explains why analysts expect Apple's top line to increase by 6% in fiscal 2025 (which will coincide with nine months of calendar 2025) to $414.5 billion. Its earnings, on the other hand, are expected to increase by almost 10% to $7.39 per share. The growing adoption of generative AI smartphones is going to play a central role in helping accelerate Apple's growth this year.
After all, shipments of generative AI smartphones are forecast to jump by 73% in 2025 from this year's shipment estimate of 234 million units. This means nearly 405 million generative AI smartphones may be shipped next year. Apple is the second-largest player in the global smartphone market with a share of 17.7%, which puts it just behind Samsung's share of 18.3%.
So, Apple is in a solid position to capitalize on the massive opportunity available in generative AI smartphones, especially considering that it now has a smartphone lineup to cater to this space. More importantly, Apple's massive installed base of devices that are in an upgrade window should help boost its shipments in 2025 and beyond.
J.P. Morgan analyst Samik Chatterjee estimates that Apple's iPhone shipments in the current fiscal year could increase by 10% from fiscal 2024's estimated shipments of 222 million units. The analyst expects the trend to continue in the next fiscal year as well with estimated shipments of 268 million units in fiscal 2026.
Throw in the fact that Apple may opt to monetize its generative AI suite of features, and it is easy to see why analysts expect the company's top- and bottom-line growth to accelerate in fiscal 2026.
AAPL Revenue Estimates for Next Fiscal Year data by YCharts
How much upside can investors expect in the next two years?
As we see in the chart above, Apple's earnings are expected to jump to $8.31 per share in fiscal 2026. If we multiply the projected earnings after two years by the U.S. technology sector's average price-to-earnings ratio of 50, Apple's stock price could hit $415 in a couple of years. That would be a 73% jump from current levels.
Apple is currently trading at 39 times trailing earnings and 32 times forward earnings, which means investors can buy this tech stock at a relatively attractive valuation. Of course, one might argue whether Apple deserves a 50x earnings multiple considering its slow pace of growth right now, but even if it trades at a relatively cheaper 40 times earnings after a couple of years, it could deliver 38% gains from current levels, giving investors a good reason to buy the stock right now.
