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Wednesday, December 8, 2021
Apple (AAPL) is on the precipice of a historic $3 trillion market capitalization. Hitting the mark would be a first for any company, and an incredible feat given the fact that Apple only hit $2 trillion in 2020 and $1 trillion in 2018.
To reach the $3 trillion point, Apple's share price will need to top $182.86, and despite falling a little more than 1% on Monday, it looks as though the tech giant will cross the threshold in the coming weeks if not days.
But to live up to the hype driving the company's stock into the stratosphere, Apple has to pull off some incredible feats. Of course, it needs to continue dominating the smartphone and smartphone accessory markets — but it also needs to drive growth in new areas.
Specifically, Apple will need its expected move into virtual reality and augmented reality and long-rumored work in the autonomous vehicle industry to be just as successful as the company's existing businesses.
And while I've previously said that Apple is the company that could actually make AR/VR go mainstream, it's going to take a lot of effort to get consumers to adopt a still-nascent technology. And if you think that'll be hard, turning the company into a full-fledged automaker will be a Herculean task.
They need to stop the revolving door of car leaders
Reports that Apple plans to build its own electric vehicle have been kicking around for years. But if Apple is going to live up its $3 trillion market cap, and begin its potential march to $4 trillion — I can't believe I just wrote that — the company is going to have to ensure that it can deliver on its sky-high expectations.
Apple, however, may be ratcheting up the pressure beyond that by planning for a completely self-driving car without a steering wheel. That, according to Loup Ventures managing partner Gene Munster, could strain the vehicle's development.
"They need to do less than what they want to do," Munster said, adding that consumers would likely respond just as well to an Apple car with a steering wheel that could take on the likes of Tesla (TSLA).
Apple's other problem in the automotive department has been the number of executives who seem to come and go with worrying regularity.
"They need to stop the revolving door in auto," Munster said. Apple, he added, needs to copy Tesla's playbook and hire as many experts in the field as possible and hold on to them.
According to Bloomberg, at least nine members of Apple's automotive management team have jumped ship in 2021 including former project head Doug Field, who left for Ford. He's been replaced by Apple Watch head Kevin Lynch.
If the Apple Car ever hits the road, it could open the company up to a massive new market. It won't be an easy journey, though. Tesla has shown just how difficult it is to become a major player in the automotive market, with the company nearly going bankrupt as it ramped up production of its vehicles.
Apple could be the one to take AR/VR mainstream, but it won't be easy
It's not just the Apple car that investors are looking toward. Perhaps more important in the near term, however, is Apple's rumored augmented reality and virtual reality effort. Apple is expected to launch AR/VR headgear in 2022, but it faces challenges since headsets have yet to truly break into the mainstream.
First, Apple needs to prove that there's a reason for people to strap a piece of tech to their face, a tall task considering some people don't even like wearing glasses. Then it needs to build out a capable app store similar to what the company did for the iPhone.
"It doesn't need to be as big as the iPhone," Munster said. "But it needs to be a massive business. A $100-billion dollar plus business."
Analysts including Wedbush's Dan Ives and BofA's Wamsi Mohan have both pointed to the potential of the phone pushing Apple's share price ever higher.
"We view this technology as a game-changer as it will enable many new applications which will require high performance hardware and higher access speeds," Mohan wrote in a recent investor note.
According to the analyst, the AR/VR headset could push consumers to purchase newer iPhones with newer processors and 5G connectivity to help power the headset.
The iPhone will still be king
While it'll be important for Apple to dive into new product categories, the tech giant wouldn't have gotten close to the $3 trillion mark without its iPhone. It's not only the gold standard of smartphones, but has become the anchor for devices including the AirPods, Apple Watch, Apple Music, and Apple TV+.
For now Apple continues to reckon with the ongoing chip shortage. In October, the company cut its iPhone orders by 10 million units, dropping its total from 90 million to 80 million.
Still, the company continues to perform incredibly well, with Ives saying that Apple could see 15 million iPhone 13s sold in China in the December quarter alone.
Moving forward, the iPhone will still be at the center of Apple's overall strategy. And analysts and investors will look to its sales and consumer perception to suss out more about the company's future growth. But if Apple is going to prove it's a $3 trillion plus company, it will need its headsets and car to perform just as well as its other offerings.