Apple Inc. (NASDAQ:AAPL) stock steadied on Tuesday ahead of the company’s shareholder meeting after roaring higher on Monday. Some analysts are starting to come to terms with the possibility that the “supercycle” era might be over for the company, and as a result, they’re looking even more earnestly for the next set of Apple stock drivers as the iPhone fire starts to cool.
More and more analysts have been abandoning the iPhone X in favor of the services business as it became apparent that Apple didn’t get the traction they were originally looking for with it. The company itself has emphasized its services business as a future area of growth, so it doesn’t take much of a leap to see it as one of the future drivers of Apple stock.
Nomura Instinet analyst Jeffrey Kvaal offered an outline of potential Apple stock drivers in a note on Tuesday, although he thinks it could be years before any of them emerge as major areas of growth. He spotlighted services as a future driver and possibly the Apple Watch as well. For now though, he expects the “uninspired” iPhone X demand to continue. He believes Apple planed for more demand than there actually was during the December quarter, based on the company’s latest balance sheet.
Although sell-through looked week during the quarter, he does still think the iPhone user base grew. Apple had about 1.3 billion iOS devices active during the holiday quarter. He warned that the “era of [the] supercycle” may now be over. He’s looking for 226 million iPhone units in fiscal 2018, compared to the iPhone 6 cycle when Apple sold about 231 million units. He estimates a lower number even though the user base is now about 50% higher than it was then.
According to Kvaal, longer upgrade rates and more secondhand iPhones are likely to drive the growth in the iPhone user base. In fact, he expects secondhand phones to drive growth in Apple’s services business. He notes that the user base has almost doubled since 2014 even though unit shipments have been flat to down. By 2020, he believes services may be one-third of the company’s gross profits thanks to rising average revenue per user.
As far as the Apple Watch goes, his telco checks suggest that about 1 million LTE Apple Watches were sold in the December quarter. He expects wearables to be 10% of Apple’s sales by 2020.
Baird analyst Will Power has a slightly different idea when it comes to future Apple stock drivers. He told CNBC’s Squawk Box on Tuesday that the iPhone maker should look to the living room as its next area of major growth. He emphasized content as a key way to target the living room as an area of growth. Of course, original content would still fall under the company’s services business. He estimates that Apple’s services segment is worth approximately $30 billion and experiencing double-digit growth.
Apple’s capital plans have been in focus since the passage of the tax reform bill, so investors and analysts are hoping to hear more details at the shareholder meeting today. Several analysts have floated suggestions for major acquisitions, such as Netflix or Tesla.
However, Power doesn’t think Apple should make a major acquisition with the cash it plans to repatriate. Goldman Sachs analysts offered similar commentary recently, saying that just because Apple can afford to make a major acquisition, it doesn’t mean that it should.
Apple stock climbed by less than 1% to as high as $164.22 in intraday trading on Tuesday.
