A summary of AAPL’s worth as a stock – despite pressures on both supply and demand – notes that the company’s market cap is roughly the same as the gross domestic product of the United Kingdom.
Apple is increasingly being seen as a stock that offers investors the best of both worlds …
Current challenges
Apple is currently facing challenges on both the supply and demand side.
AAPL’s worth, and current standing
Well-respected investment site The Motley Fool draws the comparison in a new blog post today.
So far, most of the talk about the smartphone industry has focused on problems of supply, rather than demand.
First, the global chip shortage, which was created by a mix of factors. These include increased demand for technology during the pandemic, COVID-related production disruption, and a growing demand for chips by car-makers; as cars rely on increasing numbers of microprocessor units.
Second, widespread production disruption in China due to city-scale lockdowns as the country continues to insist it can eradicate COVID-19 despite growing frustration on the part of the population. iPhone 14 production prep is already said to be three weeks behind schedule, with the iPhone 14 Max singled out.
However, there is now growing concern that demand may also be hit.
Looking ahead, there are concerns about the impact of inflation on demand for expensive consumer electronics products. Sanctions on Russia are impacting everything from energy prices to product distribution. Ukraine is also a major food exporter, so food prices are also increasing as supply falls.
This has seen inflation soar, while the “great resignation” is creating additional inflationary pressure as companies are forced to increase salaries in order to retain and recruit staff. The term was coined by psychologist Anthony Klotz, who successfully predicted the impact of the pandemic on the workforce.
The piece mostly covers well-worn ground, talking about the benefits of the company’s free cash flow and brand value. But it also notes the strong performance in tricky times, and says that a stock once considered too risky by billionaire investor Warren Buffett is now considered one of his most stable investments.
Today, the iPhone maker’s $2.3 trillion market capitalization equates to 11% of the United States’ 2020 GDP and is on par with that of the United Kingdom.
AAPL offers the best of both worlds
Not everyone would agree with one aspect of the piece – that Apple “routinely” introduces new products. The company’s move into new product categories is a famously cautious one.
The company’s $97.3 billion in total sales climbed 8.6% year over year and beat Wall Street estimates by 3.5%, and its $1.52 earnings per share finished ahead of consensus forecasts by 6.3%. While the 6.6% expansion in its core product business, i.e., iPhone, iPad, Mac, and wearables, Home, and accessories, was solid, it was the company’s services segment that wore the crown for most-robust growth. The services category surged 17% to a record $19.8 billion, serving as the primary catalyst for growth with both big growth and big margins.
“These impressive results reflect the impact of our continued investment in improving and expanding our services portfolio and the positive momentum that we’re seeing on many fronts,” said CFO Luca Maestri during the quarterly call with analysts. The services segment includes the App Store, iTunes, Apple Pay, iCloud, and AppleCare.
For the full fiscal year 2022, analysts are modeling a top line of $394.2 billion and earnings of $6.15 a share, translating to 8% and 10% growth year over year, respectively. Apple’s popular product business and growing services segment position the technology giant well.
But the combination of ecosystem lock-in, ever-growing services revenue, and sufficiently frequent new product categories to keep the company moving forward is increasingly seeing the company viewed as offering the best of both worlds: the stability of a blue-chip stock, with the growth potential of the tech sector.
Photo: Amanda Yum/Unsplash
