Apple hits $2T market cap

Ray Wang, Principal Analyst of Constellation Research, joins The Final Round to discuss Apple's milestone as the first U.S. company to hit $2T in market cap and what the potential downside is for the tech giant.

Video Transcript

SEANA SMITH: Welcome back to "The Final Round." Let's talk a little bit more about Apple, the company reaching a $2 trillion valuation, making it the most valuable US company ever. For more on that, we want to bring in Ray Wang, Constellation Research principal analyst and founder. And Ray, let's just talk about this milestone and just in terms of one, how significant is it? And also, do you think this rally that we've seen in Apple still has some room to run?

RAY WANG: Yeah, this is significant. This is one of the digital giants, and they're a digital giant without doing ad monetization, which is unique. They've been doing it through digital services, and it's the services number we're looking at. Yes, they did a great job selling their hardware, getting the more Macs out the door, getting more iPhones out the door.

But what actually is shining is the services number which we think by the end of the year might get to close to 23% of the revenue. And that's the part people are looking at, from the monetization, whether it's like Apple TV Plus on the streaming side, whether it's going on the credit card business side, and all the other additional services around AppleCare that's picking up. This is all adding up and actually creating the momentum.

SEANA SMITH: Now I have a question for you about that, because there are still some risks out there just in terms of what could get in the way of Apple's momentum, specifically, the dispute that we're having with China right now, any potential backlash that we could see over there in terms of US companies, because we know China is so important here to Apple. Is that something that you're keeping a close eye on, or do you think maybe some of those concerns might be a bit overblown?

RAY WANG: We looked at store re-openings in China. We also looked at the geopolitical risk factors that were going on, and what we realized is that this US-China war is going to go on for the next five to 10 years. And I think that's kind of priced into the market.

But part of the reason that we're looking at what's happening in that market is that, you know, sales of iPhones aren't necessarily the biggest number in China, but it's really the apps and the app services around the world that's driving that, and their ability to compete against Android given that they're three to one in terms of less phones sold, but they're actually double the amount of revenue made in terms of their app store. And that's really what people are looking at, is that diversification away from hardware to services. That's going to continue over some time.

But the upside is really in health care. apple's doubling down on the health care side, and at some point, they're going to be one of the biggest health tech companies in the world, and that's the piece I'm looking at along with some of the things that they might be announcing with LiDAR and other pieces around augmented reality of the future.

- Ray, what about the regulatory risk? The app store's right at the heart of their services. If they're forced to change the policy, if they can't take that 30% cut, how much downside do you see?

RAY WANG: There is a huge downside on that risk, especially when you're thinking about the duopoly between iPhone and Android in terms of what's going on in the OS. But I think at the moment, when you look at our antitrust regulation in the US, it's really about did we lose consumer benefits? Is there a piece where innovation is being curtailed? And so far, it's very hard for FTC or Justice to prove that fact. But it might happen in Europe, or it might happen in other areas where China might try to create an antitrust case just to actually cut someone out. So those are possible risks, but I think people have factored that into the market.

RICK NEWMAN: Hey, Ray, Rick Newman here. Is the era of the gadget over? Are we're not going to see any blockbuster gadgets in the next five to 10 years from Apple, or Samsung and its competitors, or could there be something around the corner maybe related to 5G?

RAY WANG: You know, I don't think it's over. I just think right now we're at a plateau. It's not just 5G, 6G's around the corner as well. But it's thinking about, if you were at CS last year, you noticed how everything was foldable, right? Displays were foldable, things were flexible.

That, plus augmented reality plus what happens after 5G, may get us the really lightweight augmented reality glasses, and also LiDAR technology that's going to be introduced in the next year or two. Those two things are actually going to change the way we look at experiences, and might create the next set of gadgets, you know, beyond the Oculus's, beyond the HoloLenses. You're going to see something probably from Apple and other manufacturers.

SEANA SMITH: All right, Ray Wang, Constellation Research principal and analyst and founder. Thanks so much for hopping on with us today.

RAY WANG: Thank you.