Apple Inc. (AAPL -0.58%) stock reached an all-time high of $180.73 on January 3, 2022, after a nearly two-year period where the tech industry flourished. However, economic headwinds and a sell-off in 2022 have led Apple shares to fall 25% since its all-time high. Still, the company continues to be one of the most reliable ones.
The iPhone: Apple’s Cash Cow
By the end of 2022, there were some concerns regarding iPhone production. Increased COVID-19 restrictions in China put manufacturing strains on Foxconn, also known as Hon Hai Technology Group, which produces about 70% of all iPhones. Investors’ concerns have since eased. Production capacity has returned to 90%, Apple made plans to leave China entirely in the coming years, and Foxconn announced it would expand to Southeast Asia this year.
Despite recent production challenges, the iPhone remains a compelling reason to invest in Apple’s stock. In 2022, the entire tech market suffered from declines in consumer demand. However, in Apple’s third-quarter ending in June, the iPhone attained a 50% market share, surpassing Alphabet’s Android. This makes it easier for Apple to attract consumers to its other devices and services, as the iPhone is a gateway into the company’s walled garden of products.
Over the last six years, iPhone revenue increased 47.5%, from $139.3 billion in 2017 to $205.5 billion in 2022. Merely looking at the iPhone’s 7% year-over-year revenue growth in 2022 compared to the 39% growth from the year-before period may look concerning. However, as with stocks, it’s best to focus on long-term growth to account for years when one device might be more popular than another. Because of the consistent growth in past years, the iPhone still is worth an investment.
Diversifying Revenue Streams
Apple is also trying to diversify its earnings with different services. The iPhone accounted for 52% of Apple’s revenue in 2022, with services its second-biggest earner, bringing in 20% of its revenue. Services such as Apple TV+, Music, and iCloud. Year over year the services revenue has grown 14% to $78.1 billion, double the growth of the iPhone.
Additionally, this year will further diversify its product line with a venture into virtual and augmented reality (VR/AR), two high-growth markets. Numerous reports in recent weeks have revealed that Apple will almost certainly release a mixed-reality headset in 2023 with VR and AR capabilities. The new product is promising, as the VR market was worth $21.8 billion in 2021 and will grow at a compound annual growth rate (CAGR) of 15% through 2030 (per Grand View Research). Meanwhile, the AR market is worth $25.33 billion and is expected to see a CAGR of 40.9% until at least 2030.
Apple’s Track Record of Success
Apple has proven its immense skill at entering new markets and quickly rising to dominance. The company displayed this talent with its success in smartphones, tablets, smartwatches, and Bluetooth headphones. These technologies skyrocketed after Apple’s new product release. As a result, it’s not far-fetched to say an investment in Apple could be an investment in the future leader of VR and AR.
Strong Financial Position
Apple is also known for its strong financial position, with a significant cash reserve, which can be used for future investments and acquisitions. The company also has a strong brand reputation and loyal customer base, which can lead to consistent revenue growth. Apple’s dividend payout to shareholders also provides an additional income stream for investors. The company’s focus on innovation and new technology, such as 5G and the Internet of Things, also presents potential opportunities for growth in the future.
Global Trend of Adoption of Technology
Another important point to consider is the global trend of increased adoption of technology and the shift towards a digital economy which is expected to continue in the future. As one of the leading technology companies, Apple is well-positioned to benefit from this trend as people will continue to demand its products and services. With the pandemic leading to an increase in remote work and online learning, the demand for Apple’s products and services has been growing. The company’s iPad and Mac sales have been growing significantly as more people are using these devices for work and education.
Presence in the Chinese Market
Additionally, Apple’s strong presence in the Chinese market is also a positive factor. China is one of the world’s largest consumer markets and Apple has been able to establish a strong brand there, which will likely continue to drive sales growth in the future.
Despite the 25% dip in stock price, Apple shares remain a good investment opportunity. The company has a strong track record of success, a diversified revenue stream, and a strong financial position. The iPhone remains a cash cow, and the company’s diversification efforts and entry into high-growth markets, such as VR/AR, provide the potential for future growth. Additionally, the global trend of increased adoption of technology and the company’s strong presence in the Chinese market are also positive factors to consider. Long-term investors should consider buying Apple stock while it is currently down.
