Raising Apple Stock’s Fair Value Estimate to $150

Apple Stock at a Glance

• Current Morningstar Fair Value Estimate: $150
• Apple Stock Star Rating: 3 Stars
• Economic Moat Rating: Wide
• Moat Trend Rating: Stable

We are upgrading our economic moat rating for Apple AAPL to wide from narrow, as we have greater confidence in the firm’s competitive advantages stemming from high customer switching costs, intangible assets, and network effects associated with its iOS ecosystem. We believe switching costs from iOS are as strong as ever thanks to more auxiliary products and services that make switching away from iOS more difficult over time.

Regarding intangible assets, Apple’s differentiated user experience via iOS coupled with its expertise in hardware, software, and now semiconductor design allows the firm to build vertically integrated products more seamlessly. We also see network effects around iOS and its 1 billion-plus installed base with new app development favoring iOS.

Lifting Fair Value Estimate on Apple Stock

We are raising our fair value estimate to $150 per share from $130 per share, as we expect the firm to earn excess returns on invested capital over a longer time horizon consistent with our wide-moat rating. While shares are modestly undervalued relative to our updated fair value, we expect the upcoming quarters to be challenging for Apple from both demand and supply perspectives. Consequently, we recommend prospective investors wait for a wider margin of safety.

Going forward, we expect Apple to better monetize its captive user base via supplemental products and services that will evolve into a more robust recurring revenue stream. We see no other technology titan with comparable expertise across consumer hardware, software, services, and chip design. In turn, we believe this integration allows Apple to build premium devices that command industry-leading average selling prices and margins—most notably the firm’s crown jewel, the iPhone.