Dear Reader,
Apple Inc., the consumer electronics producer, made inroads with its first generation of 5G enabled iPhones. It seems consumers are prepared to pay up for premium iPhones with the premium 5G feature. Apple commanded 20.8% of smartphone shipments in Q4 2020. This is remarkable given the fact that Apple's share of the global existing smartphones market has been hovering around 12 %.
What is especially astounding is that Apple has achieved the aforementioned first place in Q4 smartphone shipments with smartphone sales declining by 12 % year on year in 2020
Since several years Apple does not break down the iPhone units it sells, but iPhones most probably account for approximately 60 % of the nearly of 300 billion USD yearly revenue Apple achieves. This is a remarkable number, which coupled with Apple's regular more than 20 % net profit margin explains at least to 70 % Apple's current 2.04 trillion USD valuation.
That said, I estimate Apple's current intrinsic value is around 1.4 trillion USD. Apple has benefited from the coronavirus crisis as people started working from home en masse and bought many more Macs and iPads than usual. Along with the services revenue, which Apple says is also at record levels, this explains to a large extent investors' current enthusiasm for Apple's stock. However, the coronavirus pandemic will soon end and Apple cannot count on the recent speed of digital transformation for long. What is more, last year smartphone shipments fell by 12 % which points to market saturation to say the least. The information technology boom since 2013 was mainly driven by rising smartphone adoption. Now that has ended. The new hope for fast growth the IT sector now places on artificial intelligence. But the development of artificial intelligence has proven not very fast in the past. And Apple does not collect data extensively and data fuels artificial intelligence. The general peak cycle economy we are currently experiencing and the recent developments in the information technology sector make me think that Apple is 30 % overvalued at current stock price levels.
Yes, information technology is the future as companies look more and more to cut costs by using software algorithms. But most of the technology stocks worldwide have grown in value much above their intrinsic worth driven by money creation by the leading central banks. Sooner rather than later this bubble will burst and pending stock market crash will cause a new economic downturn.
Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn, Facebook etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".
Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.
Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!
Respectfully yours,
Petar Posledovich
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