One fascinating current stock market debate is how to justify
Apple’s
$3 trillion valuation. Apple generates most of its revenue from two markets that aren’t growing—smartphones and PCs. When Apple reports results in early August, revenue is likely to be down from a year earlier.
The stock trades at a lofty 29 times expected profits for the September 2024 fiscal year and seven times forward sales. If you assume that it holds those multiples, it would take an incremental $150 billion in sales—equal to
IBM
(ticker: IBM) and
Oracle
(ORCL) sales combined—to reach $4 trillion.
Clearly, the market trusts Apple (AAPL) to figure it out. It has been the best buy-and-hold in history. But where’s the growth? What will Apple invent next? AI chatbots? (Apparently on the way.) Cars? (Rumored for many years.) Starships? (A little early.) But maybe it’s the wrong question. Instead, maybe we should be asking where Apple should go next.
In a lengthy research report this past week, Morgan Stanley analyst Erik Woodring—an Apple bull—argues that a key growth driver for Apple isn’t a “what” but a “where”: India. Woodring thinks that over the next five years, India will account for 15% of Apple’s revenue growth, eventually reaching 20% of its installed base of device users.
The analyst notes that India, which recently passed China to become the most populous country on Earth, accounted for just 2% of Apple’s revenue over the past five years, with a run rate of about $6 billion. Compare that with China, which has been about 18% of Apple’s revenue over the past five years, now generating $75 billion a year in revenue.
Woodring thinks the gap is going to start to close, given both a booming Indian economy and Apple’s investments in the country. The company has opened its first stores there, added local manufacturing, and created financing options to make iPhones more affordable. The stage is set, he says, “for India to become Apple’s next growth frontier.”
According to Woodring, Apple’s revenue from India should reach $40 billion over the next decade—and by 2032, he thinks India will account for 10% of the world’s Apple users. Woodring contends that India will be as important to Apple over the next five years as China was over the past five.
Based on his increasingly bullish view of Apple’s position in India, Woodring recently lifted his Apple target price to $220 from $190, with a “bull case” of $270. If that happens, Apple would blow past $4 trillion, on the way to $5 trillion. Makes you wonder what—make that where—Apple would go from there.
Write to Eric J. Savitz at [email protected]
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