Why are so many investors upbeat about Apple?

21 years ago

“Why are so many investors upbeat [about Apple Computer]? There’s still the possibility (a good one, in my opinion) that many iPod users will switch to Mac computers. Last quarter, Apple said that more than 45% of the customers buying computers in its stores are new to Mac. And the switch to Intel chips in new Macs — available six months sooner than previously anticipated — should allow the company to capitalize off its powerful tailwinds at the moment by marketing faster, more powerful Macs,” Alyce Lomax writes for The Motley Fool.

“Apple’s retail stores haven’t nearly reached saturation, and if you’ve been to one lately, you’ve probably seen for yourself what an ‘experience’ it can be. Last quarter, $1 billion of the company’s $5.7 billion in sales came from Apple retail stores,” Lomax writes. “IDC recently said that 106 million MP3 players will be purchased in 2006; at the moment, the iPod owns 70% of the market. Obviously, a big part of Apple’s future relies on the iPod’s continued dominance, since it’s significantly polished the Apple brand and spurred a possible ‘halo effect’ of increased Mac sales. There are plenty of high-powered rivals who want a piece of the MP3 player market; Sony, Dell, and Creative have competing MP3 players, and they’re drooling over the opportunity to woo consumers.”

“Last, there are the issues of whether Apple can attract new users to buy iPods and convince existing iPod owners to upgrade. It’s quite possible that many existing iPod owners won’t be willing to shell out yet another $400, again and again, for the latest model. (And how long will Apple be able to add must-have innovations to each new model?) All right, so here’s my final answer about Apple as an investment right now: I don’t know. I certainly don’t want to go on record saying, ‘Don’t buy Apple.’ I am impressed — the company has proved bears wrong for several years now while the iPod became an absolutely amazing phenomenon. However, it just seems nearly impossible to extrapolate what future growth rates will be,” Lomax writes. “In other words, a lot of things have to go right, and not many can go wrong. And of course, at some point, what’s known as the law of large numbers is going to kick in (it always does). That’s why I couldn’t pull the trigger on Apple as my Stocks 2006 recommendation. There are plenty of risks investors need to be aware of — maybe now more than ever. For now, I’ll keep on loving Apple the iPod Innovator. As for Apple the Stock? It’s been a great story thus far — one that I look forward to watching as 2006 unfolds.”

Full article here.

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