APPLE STOCK PASSED 1 TRILLION, NOW WHAT? Here is what Morgan Stanley And Nomura Analysts said

• Is Apple stock overvalued?
  
• Apple stock Upgrade/Downgrade 
• Is 2 Trillion possible? 

Last year, Apple shares performed strongly in the stock market. Currently analysts have raised their price targets for Apple shares, however have warned that the shares may be hit by expected inflations.

On Friday (Jan. 18th), analysts from Morgan Stanley and Nomura raised their price targets for Apple stocks, which has continually surged. Analysts from Nomura warned that inflated iPhone 12 expectations "may make the music stop." The analysts further questioned the market enthusiasm about a "5G supercycle."

While Morgan Stanley analysts increased its price target for apple shares from $296 per share to $368 per share, Nomura increased theirs from $225 per share to $280 per share. The analysts expressed their views in some notes that were published in the early hours of Friday. 

Morgan Stanley's Review

In the past twelve months, shares of Apple have been up by about 103%. Morgan Stanley analysts projects that based on the peaking smartphone replacement cycles, as well as the upcoming 5G product cycle, apple is expected to continue to outperform its hardware peers.

Morgan Stanley’s note highlighted that the iPhone replacement cycle has stretched to nearly four years since the market moved from subsidies to installment plans and the pace of technological change slowed.

The note said, “However, longer battery life and upcoming 5G technology which will enable new functionality like Augmented Reality combined with aggressive trade-in offers that subsidize upgrades for existing iPhone owners suggests replacement cycles can’t stretch much further and may in fact begin to shrink. At the same time, Apple’s dependency on the iPhone for earnings has declined, with services and wearables now constituting 27% and 37% of profits."

CNBC reports that the increased target is based on a higher full-year 2021 revenue base, increasing peer-driven price-to-earnings (P/E) multiples and the separation of Apple’s wearables, home and accessories products from the rest of its established hardware business, with a new and distinct multiple assigned to that business. This then implies that Morgan Stanley’s P/E target was raised based on this from 19.1 times to 22.2 times. The P/E ratio metric is used by traders to gauge the value of a stock.

Nomura's Projection

The price target increase by Nomura was based on huge demands and orders for iPhones, which further suggested that the iPnone 11 cycle was likely to continue all through this year, as well as Apple wearables offering an extra boost. But, Nomura analysts expressed that Apple’s current P/E ratio of 21 times earnings was primarily based on market anticipation of a pending “5G supercycle,” which may be misguided.

The note by Nomura said, “We expect the $40-80 incremental bill of materials cost to a 5G phone to be a barrier to adoption. No link in the value chain, that is, consumers, suppliers, operators, or Apple itself, is likely to shoulder that cost burden.” Nomura further points that the rate of upgrades declined during the 3G and 4G cycle, and that Apple has ordered between 75 and 85 million iPhone 12 models for the second half of 2020. These figures show that it is up 10% from the 70 million to 75 million iPhone 11 models it ordered in the second half of 2019, however analysts argue that a $315 share price likely assumes full-year 2021 volumes of approximately 250 million, up 30% from full-year 2020 volumes.

Brief Overview of Apple

Apple is an American multinational technology company that designs, develops and sells consumer electronics, computer software and online services. The company is headquartered in California. Its hardware products include the iPhone smartphone, iPad tablet computer, Airpods wireless earbuds and more. Its software includes macOS, iOS tvOS and iPadOS. Its online services include the iTunes store, Mac App Store, iCloud, and others. 

The company was founded in 1976 by Steve Jobs, Steve Wozniak and Ronald Wayne. Over the years, the company has continuously grown with the launch of new products and services. Apple had a revenue of $59.531 billion for the 2018 fiscal year. The shares of Apple are publicly traded on the Nasdaq index with ticker symbol as AAPL.