We’ve
raised
our
fair
value
estimate
for
Apple
[AAPL] stock
to
$160
from
$150
after
modest
upward
revisions
to
our
five-year
sales
forecast.
We’ve
also
lowered
our
Uncertainty
Rating
to
Medium
from
High,
based
on
our
higher
conviction
in
the
firm’s
ability
to
offset
consumer
spending
cycles
with
its
premium
and
differentiated
approach.
We
continue
to
see
Apple
as
a
dominant
technology
ecosystem
provider
meriting
a
wide
economic
moat,
and
we
maintain
our
exemplary
capital
allocation
rating
based
on
a
strong
investment
track
record
that
has
helped
carve
that
moat.
We
believe
Apple
is
a
fundamentally
excellent
company,
but
continue
to
see
its
stock
valuation
as
challenging.
That
valuation
has
surged
more
than
40%
in
2023,
based
on
new
product
launches
and
improving
macroeconomic
conditions.
Simply
put,
we
think
Apple
stock
has
outpaced
the
firm’s
fundamentals,
and
recommend
waiting
for
a
pullback
before
investing.
We
believe
Apple
has
cemented
a
long-term
position
atop
the
consumer
electronics
industry
with
a
focus
on
a
premium
ecosystem
of
tightly
integrated
hardware,
software,
and
services.
We
see
its
flagship
iPhone
as
the
linchpin
of
this
ecosystem
from
which
Apple
derives
its
pricing
power,
switching
costs,
and
network
effect.
In
our
view,
every
other
Apple
device
and
service
sees
its
greatest
value
from
further
locking
customers
into
this
walled
garden.
We
are
impressed
by
Apple’s
core
design
prowess
across
both
hardware
and
software,
which
we
think
is
the
product
of
immense
cumulative
research
and
development
investments.
We
like
the
firm’s
latest
push
to
bring
most
of
its
chip
development
in-house.
To
us,
this
gives
it
more
opportunity
for
product
customisation
and
a
better
ability
to
differentiate.
In
our
view,
Apple
reduces
its
cyclicality
compared
with
other
consumer
electronics
players
by
melding
its
semiconductors,
hardware,
and
software.
Apple
to
Focus
on
Chip
Development
and
AI
Over
the
medium
term,
we
expect
Apple
to
focus
on
progressing
its
internal
chip
development,
artificial
intelligence
capabilities,
and
further
developing
new
form
factors
like
its
Vision
Pro
headset.
Each
one
of
these
initiatives
will
hedge
the
firm
against
disruption
risk,
in
our
view.
We
also
anticipate
the
company
will
continue
returning
tremendous
amounts
of
cash
back
to
shareholders,
which
is
supported
by
its
strong
balance
sheet.
We
hold
concerns
over
geopolitical
and
regulatory
risk
for
Apple
but
don’t
see
these
threatening
the
firm’s
moat.
Apple’s
supply
chain
is
heavily
concentrated
in
China
and
Taiwan,
and
disruptions
to
the
status
quo
in
these
regions
could
limit
its
supply.
Apple
has
thus
far
been
adept
at
managing
its
complex
supply
chain
and
is
actively
diversifying
into
new
regions.
It
has
also
been
targeted
by
regulations,
particularly
out
of
Europe,
that
chip
away
at
its
differentiation
by
opening
up
its
App
Store
and
iMessage
services.
We
don’t
foresee
more
damaging
regulation
on
the
horizon
and
believe
the
firm
is
adequately
reinforcing
its
stickiness
with
customers
by
adding
new
devices
and
services
with
which
to
lock
them
in.
Services
are
Apple’s
next
biggest
revenue
contributor
over
our
forecast,
and
we
forecast
7%
services
revenue
growth.
Services
are
driven
in
large
part
by
revenue
from
Google
for
its
status
as
the
default
search
engine
on
the
Safari
browser
as
well
as
Apple’s
cut
of
app
Store
sales.
We
expect
solid
growth
in
Google
revenue
but
see
a
more
mixed
outlook
for
App
Store
results,
where
we
forecast
growth
in
overall
app
revenue
but
progressively
lower
cuts
going
toward
Apple
as
the
result
of
regulatory
pressures.
Elsewhere,
we
see
roughly
high-single-digit
growth
across
revenue
from
Apple
Music,
Apple
TV+,
Apple
Pay,
AppleCare,
and
Apple’s
other
services.
Apple
Wearables
Are
One
to
Watch
We
see
the
highest
growth
opportunity
in
Apple’s
wearables
revenue,
to
the
tune
of
17%
through
fiscal
2028,
primarily
driven
by
our
expectations
for
the
ramp
of
the
new
Vision
Pro
headset.
We
project
a
rapid
ramp
for
Vision
Pro,
approaching
10
million
unit
sales
and
$30
billion
in
revenue
in
fiscal
2028.
We
see
high-single-digit
growth
for
Apple
Watch
and
AirPods
sales,
with
both
products
continuing
to
gain
share.
Across
Apple’s
other
primary
hardware
products,
Mac
and
iPad,
we
see
6%
and
3%
compound
annual
revenue
growth,
respectively.
We
expect
Mac
to
see
stronger
short-term
revenue
from
a
cyclical
rebound
in
consumer
PC
spending
as
well
as
existing
Mac
customers
refreshing
Intel-based
notebooks
to
the
new
M-series
lineup.
We
think
iPad
growth
will
be
more
tepid
but
with
continued
penetration
in
enterprise
applications.
Key
Morningstar
Metrics
for
Apple
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