Why Healthcare Could Be the Next Big Thing for Apple Stock

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Apple (NASDAQ:AAPL) revenue is currently dominated by iPhone sales. However, after a decade of massive growth that saw Apple stock hit record highs, that revenue stream is threatened by a softening smartphone market. AAPL has placed an emphasis on services and hardware like wearables to help replace that declining iPhone revenue. A report from analysts at Morgan Stanley suggests a shift to healthcare could actually be the big win for Apple, with the company positioned to disrupt that industry much the way it did with the music and mobile phone markets.

Why Healthcare Could Be the Next Big Thing for Apple Stock

Source: Apple

The kicker? Healthcare is a massive industry, worth $3.5 trillion in the U.S. alone. In less than a decade, AAPL could potentially end up with a revenue stream even larger than the iPhone. Imagine what that would do for Apple stock.

Apple’s Healthcare Disruption Opportunity

Morgan Stanley analysts released a report yesterday (via Fortune) and it’s a bombshell for AAPL investors.

Worries about declining iPhone revenue have hurt Apple stock and the push to make up for that with services hasn’t been entirely smooth sailing, with new initiatives like Apple TV+ video streaming getting a tepid response.

Morgan Stanley thinks healthcare could be the true successor to the iPhone.

AAPL could leverage its extremely popular wearables — the Apple Watch and AirPods wireless earbuds — by adding more medical-grade technology. For example, adapting the AirPods to be hearing aides, or adding blood pressure monitoring capability to the Apple Watch. The hardware is just part of a growing health ecosystem Apple has developed, including the iOS Health App, and ReasearchKit, which was used by a recent Stanford study that tracked heart data for over 400,000 Apple Watch users. The company also has a $245 billion in cash on hand, which could be used to purchase a healthcare company or technology. 

The final piece of the puzzle is Apple’s reputation for privacy protection, something other tech companies eyeing the healthcare market like Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) currently lack.

According to the Morgan Stanley team, a successful Apple disruption of the healthcare market could pay off with anywhere from $15 billion to as much as $313 billion in new revenue by 2027. At the upper end that would not only dwarf the money AAPL makes from iPhone sales, healthcare revenue alone would eclipse the company’s $265.5 billion total annual revenue for 2018.

That is some serious upside for Apple stock.

This Is Not a New Idea, But It’s At a New Scale

The idea that AAPL could monetize its growing forays into healthcare isn’t new. The catalyst has been the Apple Watch. Since its introduction in 2015, AAPL has shifted the focus of the Apple Watch from being a “computer on your wrist” smartwatch to being a health and fitness wearable. 

The latest version of the device includes integrated ECG test capability and fall detection. Apple has been talking to Medicare providers about subsidizing the Apple Watch for seniors. In 2017, Apple acquired sleep tracking company Beddit, although it has yet to integrate that technology into the Apple Watch. The company has also hired teams of healthcare professionals as it seeks ways to boost Apple Watch adoption through features like an integrated blood glucose sensor for diabetics.

The Apple Watch has become a key part of the company’s push into healthcare. Morgan Stanley is suggesting the company has the pieces in place to leverage not just the Apple Watch, but also its relationship with medical researchers, its reputation for privacy protection — and its deep pockets — to make a move that could disrupt healthcare.

Upside for Apple Stock

The idea of AAPL pivoting to become a company where healthcare is a big source of revenue — if not its primary source of revenue — may seem farfetched. 

But the company has reinvented itself multiple times already. In the 1990s when it was a struggling computer company, few foresaw a time when Apple would disrupt the global music industry and transform into an electronics company with iTunes and the iPod. And even at the iPod’s pinnacle, not many people would have pictured a company where smartphones accounted for over 60% of the company’s revenue, driving Apple stock to the point of a trillion dollar market cap.

Services are a big part of AAPL’s future, but if the cards fall into place, healthcare could be the next big driver of Apple revenue — and it could make the iPhone era look like small potatoes in comparison. 

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

Brad Moon has been writing for InvestorPlace.com since 2012. He also writes about stocks for Kiplinger and has been a senior contributor focusing on consumer technology for Forbes since 2015.


Article printed from InvestorPlace Media, https://investorplace.com/2019/04/why-healthcare-could-be-the-next-big-thing-for-apple-stock/.

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