The computer industry has been far from exciting over the past decade. Sales have been sliding as consumers switch to smartphones and tablets. PCs have become virtual commodities instead of something people lust after. 2020 has changed that. The novel coronavirus pandemic caused a surge in demand for laptops as remote work and distance learning became popular. But the real news came earlier this month from Apple (NASDAQ:AAPL). The company released Mac computers equipped with its new M1 processor. These things are good enough that Mac sales could once again move the needle on AAPL stock.
To be clear, Mac sales have remained important to Apple. In the last quarter, the company sold over $9 billion worth of them — a hefty 29% year-over-year boost thanks to the pandemic. But it’s been years since anyone could say that Mac sales really had an impact on AAPL stock’s value. The M1 chip is good enough that we may be hearing more about new Macs than iPhones for the next year.
M1 Macs Win Accolades
Apple released a trio of new Macs earlier this month that are powered by the M1 chip. This is Apple’s own ARM-based processor. It’s completely customized and optimized for Mac hardware and macOS, which is the same approach the company took with the A-series chips in the iPhone.
While computer analysts were initially skeptical, they quickly became converts. The new M1 Macs have been annihilating laptops and PCs equipped with high-end processors and even discrete video cards. These entry-level models blow past Microsoft’s (NASDAQ:MSFT) Windows computers costing many times more.
Just look at some of the headlines since the M1 Macs were released:
“MacBook Air M1 Review: Faster Than Most PCs, No Fan Required”
“MacBook Air with M1 Review: A Computing Revolution”
“Apple Is Gambling the Future of the Mac on a Chip Design Pioneered in the iPhone, and It Could Pull Off Something the PC Industry Has Been Trying to Do for Years”
“Apple’s M1 Chip Makes the New MacBook Air Shockingly Good”
“MacBook Air M1 Review: An Absolutely Stunning Debut for Apple Silicon in a Mac”
“Apple M1 Chip Outperforms AMD, Nvidia Graphics in New Benchmarks”
And these are entry-level Macs, using a first-generation chip. The Verge summed up the potential for Apple’s move to upend the traditional PC market:
“The most exciting — or frightening, if you’re a traditional PC chip company — part of Apple’s new chips is that the M1 is just the starting point. It’s Apple’s first-generation processor, designed to replace the chips in Apple’s weakest, cheapest laptops and desktops. Imagine what Apple’s laptops might do if the company can replicate that success on its high-end laptops and desktops or after a few more years of maturation for the M-series lineup.”
Potential Impact on AAPL Stock
While Apple has gained ground — especially with laptops — Windows-based PCs still dominate global sales. In the third quarter, Apple moved 5.5 million Macs, out of 71.4 million PCs sold in total. However, the M1 chip is a potential game changer. And it may be just the start.
The global PC market has been in decline for a decade. But that 71.4 million units sold to the Windows camp in the last quarter represents opportunity for Apple. If its new processors can convince even a small percentage of those Windows users to make the switch to Mac, that would have a material impact on the company’s bottom line. Base Mac prices range from $699 for a Mac mini to $5,999 for the Mac Pro. Multiply those numbers by several million units and you have billions of dollars in additional revenue per month.
And with the well-known “halo” effect, every person who buys a Mac has a greatly increased chance of buying an iPhone, Apple Watch and other Apple hardware, plus subscribing to Apple services. So every additional Mac sold can have a multiplier effect on Apple revenue.
Bottom Line on Apple Stock
The nice thing about AAPL stock is that it’s a safe bet. This is a classic Portfolio Grader “A-rated” stock. It may hit the occasional rough patch, but the story of Apple over the past decade has been one of relentless growth.
The iPhone was the single biggest factor in driving share prices to the point that Apple became the first U.S. public company to be worth $1 trillion in 2018. The iPhone was a big part of the company hitting a $2 trillion valuation in August, but its dominance in the company’s revenue mix had begun to weaken.
In the latest quarter, Mac sales accounted for nearly 14% of Apple’s revenue — up three percentage points from the year before. That’s attributable to the pandemic and its work-from-home boost, but what if the M1 Macs result in $9 billion in Mac sales being the new norm? What if that number goes even higher? Given the performance of the new Apple Macs and knowing that the next generation is going to be even more impressive, that’s suddenly a very real possibility. And I think it has the potential to help drive AAPL stock growth in 2021.
On the date of publication, Louis Navellier had a long position in MSFT. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.