Apple Stock Could Surge Even Higher Following $2 Trillion Valuation, Morgan Stanley Says

TOPLINE

Despite Apple surpassing a valuation of $2 trillion last week—becoming the first U.S. company to do so, Morgan Stanley analysts argue that the tech giant remains undervalued, raising their price target for the stock to the highest among major Wall Street firms.

KEY FACTS

Crucial quote

“We increasingly believe that Apple should be valued like a technology or consumer platform, rather than a more cyclical hardware company,” Morgan Stanley’s note said. “Apple proves that a more diverse portfolio combined with loyal customers and increasing engagement translates to more secular, not cyclical growth.” The analysts estimate that in a base case, between 2021 and 2026, the company will grow its revenue 8% annually and earnings per share by 11% annually.

What to watch for

Morgan Stanley analysts also shrugged off the company’s ongoing legal battle with Epic Games, the developer of Fortnite, calling the loss “immaterial” to Apple’s revenue base. The Fortnite app generated an estimated $130 million of revenue for Apple in the last twelve months, which equates to roughly 0.04% of Apple’s total revenue base, the analysts note. “Entire industries have been created because of the App Store,” they said, pointing to high-profile examples such as Facebook, Uber, Instagram and Grubhub. What’s more, based on data from Sensor Tower, customers are spending more than ever in the App Store: Total spending was up 25% year-over-year in the twelve months ending July 2020. 

Key background

The tech giant became the first publicly traded U.S. company to reach a market capitalization of over $2 trillion last week. Apple is also planning a 4-for-1 stock split on August 31, which has been cheered by investors. Morgan Stanley’s price target would equate to $130 per share after the stock split.

Further reading

Apple Becomes First U.S. Company Worth More Than $2 Trillion (Forbes)

Dow Jumps Nearly 400 Points, S&P 500 And Nasdaq Hit Fresh Record Highs (Forbes)