Apple stock at a glance
- Morningstar Current Estimate of Fair Value: $150
- Apple Stock Star Rating: 3 Stars
- Pit Economic Rating – Width
- Moat Trend Rating: Stable
We are upgrading our economic moat rating for Apple AAPL from broad to narrow as we have greater confidence in the company’s competitive advantages stemming from high customer switching costs, intangible assets, and associated network effects with its iOS ecosystem. We believe that iOS switching costs are higher than ever thanks to more ancillary products and services that make switching from iOS more difficult over time.
Regarding intangible assets, Apple’s differentiated user experience through iOS, along with its expertise in hardware, software, and now semiconductor design, allows the company to create vertically integrated products more seamlessly. . We also see network effects around iOS and its installed base of over a billion with the development of new apps that favor iOS.
Apple stock fair value estimate increased
We are raising our fair value estimate to $150 per share from $130 per share as we expect the company to earn superior returns on invested capital over a longer time horizon in line with our broad spectrum rating. Although the shares are modestly undervalued relative to our updated fair value, we expect the next few quarters to be challenging for Apple from both a demand and supply perspective. Accordingly, we advise potential investors to wait for a larger margin of safety.
Going forward, we expect Apple to better monetize its captive user base through complementary products and services that will translate into a stronger recurring revenue stream. We don’t see any other tech titan with comparable expertise in consumer hardware, software, services, and chip design. In turn, we believe this integration enables Apple to create premium devices with industry-leading average selling prices and margins, particularly the company’s crown jewel, the iPhone.