In 2018, Apple stock will climb toward $200 - and the company's market cap to $1 trillion - thanks in part to the new iPhone X that was announced yesterday (Tuesday).
The annual September event is the key to Apple Inc.'s (Nasdaq: AAPL) success for the next year. The new products it introduces are sold not just in the upcoming holiday quarter, but through the next 12 months.
New iPhone models in particular are critical - the product accounts for about two-thirds of Apple's revenue.
How well these products fare determines the direction of AAPL stock. And this year's crop looks destined to send Apple stock high enough to reach the $1 trillion valuation milestone.
Here's a brief look at what Apple unveiled today...
Apple introduced new models of three of its products: the Apple Watch, Apple TV, and of course, the iPhone.
The biggest appeal to the average smartphone buyer is the default memory, now at 64 GB rather than 32 GB. That means twice as much room for photos and videos.
Urgent: Executive Editor Bill Patalon just saw something on his precious metals charts he's only seen twice in 20 years. And it could lead to windfall profits. Read more...
But what will get most of the attention is the $999 price tag - by far the steepest starting price ever for an iPhone. The long-suspected price has caused much consternation among analysts, who fear that even Apple fans will balk.
Those fears are mostly unfounded. The iPhone X - along with its iPhone 8 brethren - will push sales to new records. That will drive up earnings and keep the AAPL stock price moving higher.
Here's why the new iPhones will make Apple a $1 trillion company...
[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]
First, it's important to point out that 81% of all iPhones in use today are iPhone 6s models or earlier. The iPhone 6 models, which debuted in 2014, comprise 30% of all iPhones in use.
So there's plenty of potential demand for the latest iPhones, despite the high cost of the iPhone X and the good-but-not-great improvements in the iPhone 8 models.
Apple's most devoted fans will buy the iPhone X regardless of the high price. These folks will have to have the top of the line. And frankly, when the cost is folded into the monthly payments, the sting won't feel so bad.
But the iPhone X will have wider appeal. For one thing, supplies will be constrained for the first several months. That scarcity will add to its appeal. Those who do land an iPhone X in those early months will have bragging rights.
The supply constraints will affect sales in Apple's Q1, but that's not really a problem - they just get pushed to Q2.
The high cost, oddly enough, will also enhance the appeal of the iPhone X. Owning one will project status, just as is the case with any pricey luxury brand.
And don't forget, for those who can't stomach the high price tag of the iPhone X, there's two new models priced more reasonably. The iPhone 8 starts at $699, while the iPhone 8 Plus starts at $799.
But both starting prices are higher than those of the iPhone 7 models. It means that, especially with the $999 iPhone X, the average selling price (ASP) of the iPhone is going to rise substantially. And that's going to feed profits and boost earnings per share (EPS) over the next several quarters.
The iPhone ASP in Apple's current fiscal year is $653, according to FactSet. Even when you throw in a few sales of the lower-priced iPhone SE (about $400), it's clear that's going to rise to close to $700.
FactSet also estimates that iPhone unit sales will increase from 217 million this year to 247 million in 2018. At the higher ASP, that translates to a $30 billion increase in revenue year over year, good for about $10 billion more in profits.
Apple's EPS will increase to $10.85 in 2018. Assuming the price-to-earnings ratio remains at about 18.3, where it is now, the Apple stock price will be $198.55. And that puts Apple's market cap over $1 trillion.
And even if the iPhone sales fall a little short, Apple is also expected to continue to grow its very profitable services business as well as its Watch sales. According to FactSet, analysts see Apple services revenue growing 16.2% over the next year and Watch revenue growing 12.7%.
Money Morning Executive Editor Bill Patalon just caught something on his gold charts that he's only seen twice in the past 20 years. A $13 billion gold anomaly he calls the "Halley's Comet of investing."
It's very rare, and fleeting, and Bill sees things lining up perfectly to bring some very sizeable precious metal profits to well-positioned investors.
Click here to check out his research...
Follow me on Twitter @DavidGZeiler and Money Morning on Twitter @moneymorning, Facebook, or LinkedIn.
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.