Where Will Apple Stock Be in 3 Years?

Apple (AAPL 0.25%) has long been the stock Wall Street loves to hate. Sure, there is plenty of love for the iPhone maker, but as soon as any headwinds appear, analysts seem to scatter like cockroaches when the light is turned on as everyone begins predicting Apple has reached the end of its growth phase and its glory days are behind it.

Until the next earnings report, when there are inevitable so-called surprises over just how durable its business really is.

Smiling person looking at smartphone and holding a hot to-go beverage.

Image source: Getty Images.

For example, iPhone sales fell in the fiscal first quarter, down 8.1% to $65.8 billion as Apple experienced its slowest overall revenue growth since 2016, and the articles dutifully appear to proclaim that the tech giant’s future is diminished. 

So where will Apple be in three years’ time? Will it succumb, as its detractors say, or can it overcome the hurdles and continue on its long-term growth trajectory? I find myself in the latter camp and here’s why.

One-off events led to one-time shortfalls

Admittedly, Apple’s earnings report was a bit of a disappointment, but not necessarily unexpectedly so. iPhone sales, for instance, could actually be seen as better than they ought to have been considering the supply chain constraints the consumer electronics giant faced.

Foxconn, Apple’s largest assembler of iPhones, was under severe pressure due to lockdowns in major Chinese cities that had employees forced to sleep at the factory due to travel restrictions. But after China lifted its restrictions, Foxconn quickly recovered most of its production and reported January revenue hit a record $22 billion.

It’s likely iPhone sales were only pushed out to the quarter ending in March and production has increased once more, with CEO Tim Cook telling analysts production “is now back where we want it to be.”

Although Mac revenue also fell hard in Q1, and wearables sales were down, iPad sales soared, so it’s not as though there is a broad-based consumer demand problem. Supply is largely the biggest issue, and that has normalized for the most part. 

A bigger piece of a smaller pie

Despite the problems Apple faced, it still grew in comparison to the industry as a whole, taking market share while the industry contracted, including in iPhones. And according to the analysts at Gartner, the slump in PCs sales was worse than the drop in Mac shipments, by at least 2 to 1. In fact, it was “the worst annual shipment decline in Gartner’s PC tracking history.”

Mac shipments were down 10% for the period, but the best PC maker was Asus, and its shipments fell 19%. For the full 2022 year, Apple was the only manufacturer that saw growth. Apple’s market share grew to 10.7% from 8.6%. 

It’s the same situation in wearables, where Apple maintains a massive lead over the competition and has more than double the market share of its nearest rival. The Apple Watch has a 26% share compared to Samsung’s 12%.

In total, Apple’s installed base now has more than 2 billion active devices, or double what it had seven years ago.

Woman listening to music.

Image source: Getty Images.

A record achievement

And if we’re looking at the future for Apple, it’s notable services revenue hit an all-time record of almost $21 billion for the quarter. The division covers the App Store, Apple Pay, and various subscription services such as iCloud, Apple TV+, and Apple Music.

Last year was a record one for the App Store, as subscriptions soared 21% to 900 million from 745 million subscriptions the year before. And though service revenue growth slowed to 14% in 2022 from the 27% rate it enjoyed in 2021, that period was part of the pandemic boom Apple and other companies enjoyed. This, like the supply chain situation, is merely one of a return to the mean. 

Although Apple stock bounced 22% from the lows it hit in late December, shares are still down 15% from their August highs. And while that means Apple was a better buy at the beginning of 2023 than it is today, relatively speaking, the tech stock is still a great business to own — one with plenty of growth still to come, whether three years down the road or 10 years on.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool recommends Gartner and recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.