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Apple: Skating to Where the Puck is Headed
Stock Analysis & Ideas

Apple: Skating to Where the Puck is Headed

Shares of iPhone maker Apple (AAPL) have been nothing short of resilient amid the hailstorm of selling endured by tech stocks over the past quarter. Indeed, Apple stock is closer to hitting a new high than the value-heavier S&P 500. I remain bullish on the stock.

With rates poised to rise, Apple looks more than deserving of a break from this sell-off. It has an enviable balance sheet and generates massive amounts of cash across its hardware and services businesses. It’s the latter segment that could be a major boon to margins leading up to the next big product release that could be the iPhone’s successor.

Apple may be the largest company on the planet, but its ability to shift the revenue mix has been incredible. It’s on the cutting edge of innovation, and in 15 years, the firm’s revenue mix may be very different than the one today. Just 15 years prior, it was all about the iPod and Mac. Then, the iPhone changed everything.

Could another game-changer be in the pipeline?

I’d say it’s more than likely, with so many reports shining a light on Apple’s mixed-reality headset and a potential Apple Car that may be just years away. Undoubtedly, such hardware innovations could take revenue growth to the very next level.

In the meantime, investors have other things to get really excited about. The services segment, in particular, could bring forth even more margin expansion as the firm looks to break into new arenas in the tech scene.

Apple Continues Skating to Where the Puck is Headed

Recently, investors have been looking to Apple’s financial service ambitions. Alongside a Hardware-as-a-Service (HaaS) or tiered-based hardware subscription, the company could have a one-two combo to give margins another pop, as I stated previously.

Though Apple’s intent to in-house financial services may be a delightful surprise to some investors, I think the ambitious move into fintech could just be the start. Apple’s intense focus on services and agility to break into new markets should be respected.

Although fintech isn’t Apple’s traditional area of expertise, it’s been making the right moves to make a splash in the space. Whether we’re talking about partnering up with Goldman Sachs (GS) to work on the Apple Card or making under-the-radar acquisitions to break into a new space, Apple continues to find ways to do things differently and make things better than they are currently.

Indeed, the Apple Card seems to put the user first rather than the financial institution that seeks to maximize interest payments.

Moreover, Apple’s acquisition of Canadian startup Mobeewave a few years ago looks to have laid out the foundation for Apple’s Tap to Pay service. Such a service may not be consumer-facing, but it could be a means of margin expansion over the next few years.

Indeed, the service seems to render most other physical Point-of-Sales (PoS) solutions obsolete. Still, the potential upside from the service may not have been fully factored into the share price.

As Apple looks to put another one of its disruptor hats on, there’s a lot to love about the firm that could power through the next recession as its tech peers lag lower. As always, Apple is already moving towards where the puck is headed next.

iPhone as a Service: The Product’s Fate as the Next iDevice Launch Approaches?

As Apple’s financial and non-consumer-facing service businesses look to improve upon sales and margins over the medium term, most Apple fans are wondering what big hardware device comes after the iPhone. Odds are, it’s a virtual or augmented reality (VR or AR) device, which, according to reports, could be unveiled as soon as 2023.

At this juncture, the yield curve may point to 2023 being a recession year. So, delays may be in the cards even if Apple has been more resilient amid COVID-19-induced supply chain issues.

Given Apple knows what’s ready for the mainstream, I don’t doubt the success of the company’s mixed-reality headset in the works. However, what happens to the iPhone once its mixed-reality headset is ready to go?

Arguably, a mixed-reality device is unlikely to replace the iPhone. It would probably take a smaller form factor like a pair of glasses for a mixed-reality device to be viewed as a substitute for the iPhone. If anything, a coming headset would be a great complement to the iPhone.

Undoubtedly, Apple has already noted its intent is not to build an “all-day” device that has one plugged into some sort of “metaverse” for excessive periods.

However, there’s one issue that could prevent the first iteration of Apple’s headset from taking off, as the iPhone continues to be viewed as one’s main device: cost.

A mixed-reality headset is likely to be incredibly expensive if it’s to receive top-of-the-line components. If it’s to cost as much, if not more than an iPhone, how could the average consumer justify owning both a headset and the latest iPhone?

Apple’s move to in-house financial services and installments could solve the problem.

Indeed, mixed-reality devices and the iPhone could co-exist for many years. Once such pricey hardware products go under a subscription, consumers will be able to enjoy the latest iPhone while having more discretionary income to perhaps go for a headset subscription.

If anything, I view Apple’s financial service push as not just a margin enhancer but as a potential rolling out of the red carpet ahead of the launch of another class of device.

Wall Street’s Take

Turning to Wall Street, AAPL stock comes in as a Strong Buy. Out of 28 analyst ratings, there are 23 Buy recommendations and five Hold recommendations.

The average Apple price target is $193.36, implying an upside potential of 12.9%. Analyst price targets range from a low of $161.00 per share to a high of $215.00 per share.

The Bottom Line on Apple Stock

There’s a lot of innovation going on at Apple these days. I think the stock isn’t nearly as expensive as it looks to be, as it stands its ground amid the latest sell-off.

Its financial services could power next-level margin expansion, all while the firm looks to introduce new products to the hardware roster. With iPhone going to a subscription model, I also think more consumers will find it very hard to resist owning both the headset and the latest iPhone. Indeed, both devices are sure to be incredibly expensive to buy upfront.

With financing and the elimination of the middle man, Apple may very well have the means to provide consumers with an offer they simply cannot refuse.

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