Will Apple Inc. (NASDAQ:AAPL) Become a Trillion-Dollar Company Under Tim Cook?

Apple stockThe Outlook for Apple Stock in 2017

It’s a universally acknowledged truth that Apple Inc. (NASDAQ:AAPL) CEO Tim Cook lives in the shadow of Steve Jobs.

The AAPL stock price exploded when Jobs was CEO, in no small part because of “iPod,” “iPad,” and “iPhone” sales. But how did it perform under Cook? And what is the outlook for Apple stock in 2017?

Tim Cook cannot repeat the company’s early success. This much is given. Apple is simply too big and too closely watched to repeat those gains. A billion-dollar idea would barely move the needle. We need to accept this; AAPL stock is not the investment we once knew.

But Steve Jobs anointed Cook as CEO for a reason.

It’s because Cook ran Apple like a Swiss watch. Every part of the company worked in harmony while he was the Chief Operating Officer. He may not be a visionary like Jobs, but he is a proven manager.

So in choosing Cook to replace him, Jobs was telling us something about Apple.

He was saying that Apple is a victim of its own success. No one should expect it to operate in the same “startup-style” as in the early 2000s. Those days are in the past. Instead, Apple needs a steady hand to hold the sprawling company together.

Those are two distinct skill sets, so investors should think about them differently. Steve Jobs was perhaps the only person equipped to make Apple the biggest company on the planet.

But he may not have been the person to lead it forward. Maybe it needed the other skill set. The one belonging to Tim Cook.

Cook is the consummate “operator.” He has a brain for details, processes, and operational efficiency. If anyone can squeeze the AAPL stock price for every last cent, it is him.

Tailwinds for AAPL Stock

It’s not like cash is an issue. Apple has $250.0 billion in Irish bank accounts.

Shareholders spent years ignoring this nest egg because Tim Cook was reluctant to bring any of it home. The taxes owed on it were simply too high. But that may soon change.

Donald Trump proposed a “tax holiday” while on the presidential campaign trail. It is a policy that would help companies like Apple bring back their overseas cash reserves. He has repeated support for the policy many times since then.

Returning this cash to shareholders might lift Apple’s valuation over $1.0 trillion. Not only could we see an increase in dividends, but also a corresponding rise in share buybacks.

This is a delicious prospect. Investors are starting to understand this potential, particularly as a special dividend might be in the offing. Take a look at Apple stock’s performance since the 2016 election.

AAPL stock chart

Chart courtesy of StockCharts.com

It’s an easy trend line to spot. The share price bounced upward on the basis of Donald Trump’s election victory. That momentum was sustained by Apple revenue hitting record highs once more, something it had failed to achieve in 2016.

Falling iPhone sales in China were the cause of last year’s stumble. It was fleeting. Apple’s latest earnings report showed upbeat performance and a return to growth in China. The Middle Kingdom represents a final frontier for the iPhone-maker.

In any case, the pessimism around AAPL stock is gone. All that’s left is for investors to appropriately discount the company’s future cash flows. My guess is that over the next 12 to 18 months, this process could push Apple’s valuation above $1.0 trillion.

Apple Stock Chart Confirms a Bullish Story

Most people implicitly believe what I wrote at the start of this article: that Tim Cook lives in the shadow of Steve Jobs. It feels true. But I like to double-check these kinds of assertions.

Insofar as the Apple stock price is concerned, the numbers tend to agree. Jobs became CEO (the second time) in 1997. Due to pancreatic cancer, his final years in the job were peppered with long absences. However, he only relinquished his hold on January 17, 2011.

Tim Cook has been CEO since then, which makes it easy to compare their relative impacts on Apple stock. Take a look.

AAPL chart

Chart courtesy of StockCharts.com

I know what you’re thinking: Tim Cook has only held the top spot for six years. How can he possibly match what took Steve Jobs 14 years? It isn’t fair!

Sorry. But I don’t buy that argument.

Steve Jobs inherited an Apple on the edge of oblivion. AAPL stock was a penny stock when he retook the reins, giving him a much harder task than the one handed to Tim Cook.

Steve Jobs built from the ground up. He rode out the dotcom crisis. In the decade that followed, he proved that investors were right to bet on tech stocks, delivering one stunning product after another. What did Tim Cook inherit?

  • $26.7 billion of quarterly revenue
  • $6.0 billion of quarterly profits
  • $60.0 billion in cash reserves

Put another way, Tim Cook inherited a cash cow. He is the lucky heir to a dynasty.

My point is that no one expects him to truly replace Steve Jobs, so why do they expect AAPL stock to perform the same way?

Cook can rack up some triple-digit gains over the years, particularly if he’s allowed to repatriate cash at a lowered tax rate. Just don’t fall into the trap of thinking that Apple can recapture the magic of its youth.

It’s not going to happen.

What About Apple TV?

Some investors think Apple can generate more revenue growth by peddling services. Rather than dreaming up new gadgets that customers may or may not love, Apple can push its resources into safer ventures, like “Apple Music” or “Apple TV.”

Aside from licensing fees, which are sometimes expensive, Apple faces a relatively low barrier to entry. “iTunes” is already the perfect platform.

It has a massive audience of die-hard Apple users.

These folks could gravitate toward Apple TV if the service is compelling enough. But my guess is that Apple will take a slightly different tack from rivals like Netflix, Inc. (NASDAQ:NFLX), Amazon.com, Inc. (NASDAQ:AMZN), and Hulu LLC.

Rumors have been swirling for months, if not years. By piecing together those scattered bits of information, it seems like Apple will combine regular TV with a Netflix-esque on-demand channel.

You can pick from a library of movies and TV shows, or flip through a slender set of channels.

I think there is a serious market opportunity here. Streaming services like Netflix are great, but they miss out on a crucial insight.

People like to have TV running in the background. The kind of shows that Netflix et al produce are meant for intense concentration.

They demand your attention.

But what about when you’re cooking? I personally like to have a basketball game running in the background. Or when you get the kids ready for school in the morning. Sometimes it’s nice to have the morning shows on. What you don’t want is the burden of choosing something to watch.

It’s much easier to flip through channels until you find something worthwhile. That’s where I think Apple TV can distinguish itself. Instituting a small fee of $25.00 to $30.00 would represent a big chunk of revenue for Apple.

Apple Venture Capital Also Presents Upside

Remember the $250.0-billion cash pile? Apple needs to put it to work.

Even with dividends and buybacks, there is no way that Apple can spend that kind of money on shareholders alone. This has given rise to a new theory: maybe Apple wants to start a venture capital fund.

It’s not an original idea. Google (otherwise known as Alphabet Inc (NASDAQ:GOOG)) does venture capital extremely well, as does QUALCOMM, Inc. (NASDAQ:QCOM).

It only needs to be right once or twice. Winning a bet in venture capital presents outsized rewards, which is why so many big tech stocks are using it to power their next phase of growth. Apple could be in the same boat.

Should I Buy Apple Stock?

As you can probably tell, Apple is a complex stock. It has so many moving parts that your bullishness depends on your perspective.

If you’re one of those people who wants to find the next Steve Jobs, then sorry, AAPL stock isn’t for you.

But if you are just asking the question: could Apple become a trillion-dollar company? Then the answer is obvious. Yes, of course it can.

From Apple TV to the possibility of an Apple venture capital fund, investors have lots of reasons for hope. The near-certainty of repatriating $250.0 billion should be at the top of the list.

So if Steve Jobs is watching us right now, he’s probably smiling. Tim Cook did exactly what he was supposed to do: he ran a tight ship and led Apple revenue through the roof. Now he could preside over the first-ever trillion-dollar firm.

That’s not a bad legacy.