After Crushing It in 2020, Apple Stock May Level off in 2021

After the big boost in tech stocks following the U.S. Presidential election, what’s next for Apple (NASDAQ:AAPL)? Election uncertainty had AAPL stock treading water in recent weeks. But now, with this major event largely in the rearview mirror, focus shifts back to the company’s near-term and long-term prospects.

a macbook on a desk representing apple stock (AAPL)

Source: Shutterstock

I don’t have to tell you how much Apple has “crushed it” so far in 2020. When the novel coronavirus first made headlines late last winter, it looked like bad times ahead.

Yet, with pandemic tailwinds driving growth, shares not only retraced their coronavirus crash losses. Shares today change hands at prices more than 56% above where they were on Jan. 1.

Yet, after this epic performance, can the stock post similar gains in 2021? Its debatable. Granted, with the election results likely favorable to big tech, my prior prediction of a big tech correction could be less likely. Yet, while the results are good news in many areas, antitrust scrutiny may remain a major risk.

Add in the continued valuation concerns, and additional runway may be limited. That’s not to say this stock isn’t a buy. Far from it, as this is one of the “winners that keep on winning.”

So, what does it mean? Like a said a few weeks back, take your time, and wait for another major pullback.

AAPL Stock, the iPhone 12 and a Shift to Services

If there’s one thing Apple isn’t lacking, it’s catalysts. And I’m not just talking about the recently-launched iPhone 12. Sure, the success of this 5G-enabled iPhone is going to play a role in moving the needle going forward.

Yet, it may be the company’s growing services unit that helps put more points into AAPL stock. As InvestorPlace’s Dana Blankenhorn discussed Nov 3, nearly one-fifth of the its revenue now comes from services. And, with the company’s agressive expansion of its Apple TV+ service, we could be on the verge of what Blankenhorn has coined “a content gold rush.”

But, he’s not the only one who sees Apple’s future growth coming service revenue, not hardware sales. Wall Street analysts are mixed on whether iPhone sales will drive growth during the upcoming Holiday Season.

Yet, analysts like Wells Fargo’s Aaron Rakers are “encouraged” by the prospect of services revenue helping the company meet double-digit sales growth expectations.

If Apple pulls this off, and surging services revenue helps counter tepid hardware growth, it may be enough to send shares even higher. Yet, there’s still one factor still in play that could limit runway in the near-term: the risk of increased government scrutiny of the tech industry.

Political, Valuation Concerns Remain

With Silicon Valley’s near-unanimous support for Joe Biden leading up to the election, one may assume his probable victory bodes well for big tech. In other words, with their candidate at the helm, the industry will be out of Washington’s crosshairs.

Yet, while his administration offers many potential policy changes favorable to the sector, anti-trust and free speech scrutiny may still be on the table. Both these issues have growing support on both sides of the political aisle. And, even with a potentially split U.S. Congress (Democratic Party-controlled House, Republican Party-controlled Senate), we could see some bipartisan legislation that puts big tech on the defensive.

Sure, unlike Facebook (NASDAQ:FB) and Twitter (NASDAQ:TWTR), Apple doesn’t have much exposure to the free speech issue. Yet, it still has exposure to the U.S. Justice Department’s antitrust lawsuit against Google parent Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL).

And, although Biden would have the option to drop the suit, the political backlash may not make it worthwhile. Simply put, the specter of increased regulation remains in play as a negative factor that could take the wind out of this year’s epic rally in tech stocks.

Coupled with valuations stretched to the limit, it’ll take a lot of investor exuberance to send this and other major names materially higher in the coming year. That doesn’t mean a major tech correction is coming. But, it could be fewer potential gains for those diving into the sector today.

Wait For a Better Price

While I may sound on the fence regarding Apple, I concede this isn’t a name you want to bet against. With its pivot to services, the company still has a path to double-digit growth. Yet, with risks like political scrutiny still on the table, as well as continued valuation concerns, it may not be worthwhile to jump on the bandwagon and buy into the current rally.

That’s not to say AAPL stock faces big downside risk. Far from it. But, with minimal runway at today’s prices (around $118 per share), waiting for a pullback remains the best move for those interested in a long-term position.

On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.

Thomas Niel, contributor to InvestorPlace, has written single stock analysis since 2016.

Article printed from InvestorPlace Media,

©2021 InvestorPlace Media, LLC