There’s a big catalyst coming up for the iPhone maker later this year that could push the stock far higher.
Apple (NASDAQ: AAPL) shares gained just over 3% on Wednesday after reporting “blow out” earnings results late Tuesday.
The tech giant reported revenue up 9% to $91.8 billion, beating its own guidance, and said that its iPhone revenues gained 8% year-over-year to $55.96 billion.
Wedbush Securities’ Dan Ives said this was “a jaw dropper in terms of results,” while Apple CEO Tim Cook said, “it was sort of a blockbuster quarter all the way around.”
One of the most impressive areas of its quarterly report was Apples “Wearables, Home and Accessories” unit, which posted revenue over $10 billion, generating more revenue than its Mac computer business.
“Both AirPods and Apple Watch were must-have holiday gifts, helping drive unprecedented results for the category,” Cook said on the earnings call.
And for all of the talk around Apple Watches and Apple TV+, the quiet star of Apple’s fiscal first quarter earnings was its upcoming line of 5G phones, which are expected to launch this fall.
“5G is one of those undeniable transformative trends,” said Ives. “The first and biggest beneficiary will be Apple. With a 95% retention rate (when customers upgrade phones), it’s like hitting the Lotto.”
The stellar earnings results came after a rough time for Apple, which has struggled with unit growth in its biggest product line. The iPhone peaked in 2015 when the iPhone 6 was released, selling 231 million units globally.
Ives expects Apple’s 5G iPhones to feel around 195 million units in fiscal 2020, and could hit between 215 and 220 million units in fiscal 2021.
Combined with its services and wearables businesses, Apple’s 5G iPhones could push its $1.3 trillion market cap toward $2 trillion within just a couple of years, according to Ives.
Cook said that he won’t comment on future products, though he did say, “With respect to 5G, I think it’s – we’re in the early innings of its deployment on a global basis. We obviously couldn’t be prouder of our lineup and are very excited about our pipeline as well and wouldn’t trade our position for anybody’s.”
While consumers have been holding on to their iPhones for longer in recent years, Ives and others on Wall Street think 5G will help spur the reversal of this trend for Apple.
“5G will shorten or stabilize replacement cycles,” said CFRA Research analyst Angelo Zino. “Which is needed, after a three-year decline in smartphone unit sales, in an industry that had never had a decline.”
As for where Apple could go from here, Citi senior tech analyst Jim Suva says revenue and earnings growth should continue to benefit the stock for the rest of this year.
“If we look at the fundamentals about demand of what’s happening with Apple, here’s some dynamics that are very interesting. Some of their products such as AirPods as well as Watch, are selling out,” Suva said in a note. “That’s a great indicator for demand and it’s not because they’re having issues with production or yield issues. It’s simply demand is so strong.”
Suva said he expects revenues growing “10% or 11% and earnings growing 20% to 21% and then we believe in April they’re going [to] announce another capital deployment of increasing the stock, buyback and dividend. So, we think estimates keep going higher, the company keeps making more money, and margins are also going higher. It’s setting up for a very good opportunity and a reason why we think people should buy and own Apple stock.”