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A Giant Stirs and the Nasdaq 100 Moves

June 28, 2023

There is a major ‘something new’ happening at Apple and that is the growth trajectory of its services revenue. This rapid growth, a potential doubling in three years, is only possible because of the global footprint of Apple devices in the world. The number of iPhones in the world is fast approaching 1.4bn. This creates a fabulous potential for Apple to sell services like ApplePay, the App Store, Apple Music, Apple TV, books, Apple Arcade, iCloud+ and more.

Individually they are often very cheap, like 79p a month for more iCloud capacity, but they can start to add up and this is valuable recurring revenue for Apple which is highly valued by investors.

Apple AAPL is on pace to hit annual services revenue of $100bn in fiscal year 2024, Wedbush said Wednesday. 

Wedbush analysts, including Daniel Ives, said in a report that the growth trajectory was “jaw dropping,” compared with about $50bn of services revenue in fiscal year 2020. 

“Herein lies the key to the valuation rerating that we believe will continue to take place around Apple’s stock as the Street further appreciates the sheer massive potential of this services revenue that we now assign a valuation in the $1.4 trillion range.”

“We believe Apple’s fair valuation could be in the $3.5 trillion range with a bull case $4 trillion valuation by FY25,” they added. 

Wedbush kept its outperform rating and price target of $220.

MT Newswires, 28 January

This is a nice looking chart with a double whammy buy signal followed by a move to a new all-time peak. Apple shares are behaving in a way which is consistent with a move to higher levels.

As happens so often Apple’s launch of its new VR/AR device has encountered a dismissive reaction but Apple has a way of reaching its destination in the end and the device, even in its first incarnation, seems pretty amazing to me. People say it is expensive at $3,500 but given what it can do it would have been cheap for $1m a couple of decades earlier.

I also remember when I first encountered a mobile phone. My older brother had one. It was an experimental model so he did not have to pay for it. It was the size of a brick and all you could do was make calls. Look at them now and, as so often, it was Apple who took a fairly basic device and made it amazing.

Below is a chart of Apple’s spending on research & development. Back in the days of Steve Jobs they didn’t spend very much. I remembered being surprised how little they spent. That has changed dramatically in the Tim Cook era and spend in 2023 is running at over $30bn. This is a colossal sum and explains why we have become accustomed to constant improvement across the Apple ecosystem.

I often think analysts and investors obsess too much about the numbers. It is the sheer innovative energy of these businesses that makes them exciting. The American economy is like a great innovation machine driving the whole world forwards. It is incredibly exciting and is making America a magnet for talented individuals from all around the globe.

When it comes to technology they have the most exciting universities, the most exciting companies and far and an away the most dynamic venture capital scene. The rest of the world is dropping ever further behind and instead of trying to be part of what is going on they devote much of their energy to trying to clip the wings of the great American companies.

At least Rishi grasps what we need to do but whether he can do much to make it happen I have no idea. Meanwhile, the goods news, is that at least we can participate as investors.

Strategy – Time to Be a Believer

At times like this you need to have faith. Nvidia shares tumbled pre-market on Wednesday because of reports that the US government wants to put further curbs on sales of US technology to China. It is typical government behaviour. They just can’t leave well alone.

Nvidia drops on Reports of More Curbs on Sales to China

Nvidia’s edge comes from the innovative energy within the company and that can only be stimulated by allowing them to sell their products all around the world. Trying to micromanage this process is a mug’s game though naturally the companies involved are too polite to say so.

Does President Joe Biden understand what is happening in the world of technology? Can pigs fly but these guys have the power and they cannot resist using it even if it means shooting themselves in the foot.

Nvidia CFO, Colette Kress, said demand was so strong that any curbs would not make any difference.

Several analysts also noted early Wednesday that Nvidia has such an order backlog that covering any lost sales to China won’t be a problem. But Kress noted at the Piper Sandler conference that the escalating chip war between the two countries could result in “a permanent loss of opportunity for U.S. industries to compete and lead” in a key market over the long term.

Dow Jones Newswires, 28 June 2023

Red Frownies Set Up Buying Opportunities for Apple

I have included five red frownies on the Apple chart but in the grand scale of things they are not so much sell signals as setting up the next buying opportunities. If you do sell when you see a frownie this is like taking out insurance against the threat of a bigger slide. It may well cost you but you will still make far more from buying and holding during the golden smiley periods.

Share Recommendations

Apple AAPL Buy @ $189

Nvidia NVDA. Buy @ $412.50

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