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Apple Stock Is On Fire: $3.2 Trillion Market Cap Is Next

Another Wall Street analyst has set Apple stock’s fair value at over $3 trillion. Here are the key arguments behind Morgan Stanley’s bull thesis.

Apple stock  (AAPL) - Get Apple Inc. Report has zipped higher. As of the writing of this paragraph, shares had gained a whopping +3.7% in one day to climb above $2.8 trillion in value for the first time ever. Over the past month, AAPL has gained 13%, leaving a flat S&P 500  (SPY) - Get SPDR S&P 500 ETF Trust Report in the dust.

Fueling this next leg higher was a sell-side report on the Cupertino company that pins the stock’s projected market cap at over $3 trillion. Today, the Apple Maven reviews the arguments behind this Wall Street-high price target.

Figure 1: Apple Park in Cupertino, CA.

Figure 1: Apple Park in Cupertino, CA.

(Read more from the Apple Maven: Apple Stock: What Happens When The Cash Runs Out?)

Apple’s “next big thing”

The most recent analyst to bump Apple’s price target to $200 per share was Morgan Stanley’s Katy Huberty. The move comes mere days after Wedbush’s Dan Ives set his projections at that very same level, and a couple of weeks after Tigress Financial’s Ivan Feinseth saw 25% upside from late November prices to $199 per share.

Ms. Huberty’s key argument for raising her price target are Apple’s underappreciated growth opportunities in the next few years. More specifically, she sees a pipeline of “next big things” leading to the launch of AR/VR (augmented and virtual reality) devices soon and an automated electric vehicle later.

I think that the Morgan Stanley analyst was creative in quantifying the mixed reality opportunity. Katy said that 6% of Apple’s revenues come from “products or services that did not exist 5 years prior. [If] that trend continues, AR/VR could generate $29 billion in revenue by fiscal 2026”.

Should Ms. Huberty be right in her projections, we might be looking at a $150 billion market cap upside from mixed reality alone, which may not even be properly priced into the stock today. I arrive at this figure by applying a 5x price-to-sales multiple (less than the current 7x multiple due to services commanding higher valuations) to the $29 billion annual revenue estimate.

Worth mentioning, Morgan Stanley was the same research shop to recently argue that Apple’s entry into the mixed reality space would be the spark of the metaverse revolution. Now, the analyst revisits the idea by suggesting that consumers will pay more attention to this new product category once Apple makes its first move.

But wait, there’s more!

Morgan Stanley’s bullish call does not end with AR, VR and other opportunities further out on the horizon. Katy also cited drivers of potential share price upside in the near term.

The first is the iPhone in the holiday quarter. While recent reports have offered mixed messages, with at least one suggesting softening demand for Apple’s smartphone in the shopping season, Ms. Huberty has increased her unit shipment projections in fiscal Q1 by 3 million to 83 million.

Lastly, Morgan Stanley sees the App Store tracking ahead of estimates in the current quarter. Services, in fact, could also benefit from newly-launched devices in the future, as new use cases emerge from them.

The Apple Maven’s take

Apple stock has been on fire lately, and partly justifying the rally is Wall Street’s continued enthusiasm. I still believe that AAPL is a great name to hold in a portfolio for the long haul. However, I urge investors to set their return expectations accordingly, as Apple tends to perform best off a drawdown rather than an all-time high.

(Read more from the Apple Maven: Apple Stock: The Key Takeaways From An Action-Packed Week)

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Apple Maven)