The NASDAQ-100 Technology Sector the index has more than doubled the yield of the S&P 500 index over both the last one- and five-year periods, but appeal (NASDAQ: AAPL) remained until the cream of the crop, rising by about 84% so far in 2020 and about 405% over the past five years.
The significant gains put Apple’s share price at a premium of 34 times the earnings forecast, which looks expensive compared to a forward price-to-earnings multiple of 24 for the S&P 500.
However, Apple is currently working on one of its strongest product cycles in years, which could make the company hum and justify the share premium. Here are three growth catalysts to keep an eye on in 2021.
Image source: Apple.
1. Product sales can reach records in 2021
Apple enters the new year after delivering a strong earnings report for the fiscal fourth quarter. While iPhone revenue was slightly lower in fiscal 2020, sales of non-iPhone products grew 30% year-on-year despite supply constraints on iPad, Mac and Apple Watch. The momentum should continue until the first half of calendar 2021 with recent product releases.
The new AirPods Max headphones have been sold out since their first release in December. Other recent launches will provide short-term sales momentum, including the HomePod mini, Apple Watch Series 6 and Watch SE, two new iPad models and new MacBooks with Apple’s in-house developed M1 processor.
Early signs point to strong sales of iPhone 12. While 5G network coverage is heavy, customers seem to be taking the new iPhone on a record-breaking grip, which is good news because the iPhone generates half of Apple’s total revenue.
Apple plans to increase its iPhone 12 production by 30% in the first half of 2021, according to a report by Nikkei Asia which cited a source from a major Apple vendor. This will put Apple in step to reach its biggest year for iPhone sales since the record shipments of the iPhone 6 in 2015.
2. Apple’s M1 chip is a game changer
Apple took a bold step earlier this year by announcing a two-year transition to using in-house developed processors for its Mac series. Intel chips in the process. The M1 chip offers several features that can significantly enhance the user experience on Mac and lead to further gains in Apple’s market share for the computer market.
Image source: Apple.
Apple has been working for years to bridge the user experience across its operating system for Mac and iOS. The M1 chip will take it a step further by enabling Mac users to manage iPhone and iPad applications. This could be big for Mac sales in the long run.
By taking control of the development of its own chips, Apple can better plan its product roadmap and customize future versions of the M1 for specific user experiences, such as enhanced image processing, security and other latest features and technologies.
Apple is likely to reveal more benefits of the M1 chip over time, but for 2021, the significant boost to battery life and the ability to run iOS apps directly on Mac should be enough to encourage more sales of MacBooks.
3. Service growth
Despite the double-digit growth of subscriber services, sales of hardware products still account for nearly 80% of Apple’s total revenue. But with services growing 16% annually in the last quarter, this $ 53 billion annual venture could reach $ 100 billion over the next five years.
Image source: Apple.
After Apple reached an installed base of 1.5 billion active devices earlier this year, Apple reported that the installed base reached another record high in the fourth quarter. New services – including Apple TV +, Arcade, News + and Apple Card – are attracting more users and Apple is constantly adding new services and content to drive further growth.
Apple TV + continues to add new streaming content, which will be crucial in convincing users coming from their free trials that it’s worth paying the relatively low monthly fee of $ 4.99 .
The recent launch of Apple Fitness + is another service with a lot of potential. Interactive fitness was already a fast-growing market before 2020, but it got an extra kick during the pandemic, with more people looking for alternative workouts at home. Nike and Peloton Interactive have recently reported high levels of engagement with their respective training programs. Apple’s massive installed base of users should win a decent share of this booming market.
Lots of tailwinds heading for 2021
Apple is about to get a major upgrade cycle for all its products. In addition, this upgrade cycle may increase as COVID-19 vaccines become available, which will encourage more people to visit Apple stores as the year progresses.
With these growth catalysts on hand for this top-tech stock, Apple is well positioned to perform better in 2021.