One of Apple's biggest bulls thinks its rebound this year is only the start. Here's why he thinks it's on its way to $2 trillion.

REUTERS/Carlo Allegri

Apple CEO Tim Cook could have something to cheer about if Wedbush's Dan Ives is right about its upcoming iPhone sales.

• Apple's market capitalization could hit $2 trillion within as little as two years, Wedbush analyst Dan Ives told Business Insider on Monday.
• The company's current valuation stands at $1.3 trillion after its stock rose 83% this year.
• But surging iPhone sales starting next fall are likely to send Apple's stock even higher, Ives said.
• Some 350 million iPhone customers are in need of an upgrade, and Apple will offer them a big inducement with its next devices - support for the new 5G wireless networks, he said.
• Click here for more BI Prime stories.

It's been a great year for Apple investors.

But if Dan Ives is right, the good times are going to continue to roll well into the New Year and beyond.

Today, Apple is one of a handful of companies with a market capitalization of more than $1 trillion. In the not-to-distant future, it could be one of an even smaller group that's worth at least twice that, said Ives, a financial analyst who covers the iPhone maker for Wedbush.

"If I look out two years-plus, they could be looking at two trillion market cap," Ives told Business Insider on Monday.

Hitting that number isn't a certainty. Lots of things would have to go right for the company, and it would have to avoid significant setbacks, he said. But it's a good bet the company's stock will continue to soar in the near term and hitting that bigger target is a distinct possibility, he said.

"Near term, they're going continue to defy the skeptics and outperform expectations," said Ives, who, in a research note Monday, raised his 12-month price target on the company's stock to $350 a share from $325.

After falling off a cliff in the wake of weak iPhone sales last holiday season, Apple's stock has rebounded this year as its business stabilized. In the year to date, the company's shares are up 83%.

iPhone sales are poised for a rebound

What's got Ives so bullish is he thinks the very thing that sunk Apple's stock last year - its iPhone sales - is poised to boost it next year and beyond.

Apple's iPhone sales peaked in its 2015 fiscal year, when it released the iPhone 6, the first of its big-screen models. In that period, which ended that September, it sold 231 million smartphones, according to its own figures. The company's iPhone sales dipped in the years that followed, but as recently as its 2018 fiscal year, it sold 218 million smartphones.

At the end of last year, though, the company hit a wall, with sales plunging in China in particular, helping to drag down Apple's stock. In fiscal 2019, which ended this past September, Apple sold only about 190 million iPhones, Ives estimates. iPhone demand is likely to stay about the same this fiscal year; Apple is likely to sell between 185 million to 190 million through the year that ends in September 2020.

But next fiscal year should see a surge in Apple's smartphones sales, possible to the levels not seen since the iPhone 6, Ives said.

Part of the reason for that is that iPhone customers have been holding on to their phones longer and by next fall, many will be in need of an upgrade, he said. Ives estimates that there around 345 million to 350 million iPhones in use that have been in use for more than three years. The batteries and other features on those phones are starting to age, and many of them are going to need to be replaced in the near future, he said.

Apple customers tend to be extraordinarily loyal to the company, Ives said. So it's highly likely that when those customers do upgrade their phones, they'll replace them with new iPhones, he said.

And next fall Apple's going to give them a big incentive to do just that, Ives said. It's widely expected that the next iPhones - possibly as many five new models - will support the new 5G, or fifth generation, wireless standard. The new 5G networks promise much faster speeds than those running on older technologies and could enable the development of new kinds of applications. That promise is going to convince masses of consumers to upgrade their phones, he said.

"5G is the first transformational upgrade cycle since iPhone 6," he said.

Apple's sales and earnings should surge

Apple is poised to sell at least 200 million iPhones in fiscal 2021, and it could sell as many 225 million, Ives said. Between fiscal 2021 and fiscal 2022, it should sell at least 400 million phones, he said.

But the company's windfall could be even bigger than those numbers suggest, he said. Since Apple released the iPhone 6, the average price it charges for a phone has gone up significantly, thanks in large part to it putting a $1,000 price tag on the iPhone X and its successors. Those prices could go even higher with the 5G phones, further boosting Apple's revenue, Ives said.

Additionally, Apple's iPhone sales tend to boost demand for its other offerings, most notably its services and accessories like Airpods.

"You put that together, right now, now you're talking about a company that has comfortably over $15 [a share] of earnings power ... when you look into fiscal '21," Ives said.

By contrast, Apple earned $55.3 million, or $11.89 a share in its recently ended fiscal year, on $260.2 million in sales. It earned $59.5 million, or $11.91 a share, on $265.6 million in sales in fiscal 2018.

To be sure, that rebound isn't guaranteed. The trade war with China, should it lead to more tariffs on Apple goods or prompt Chinese consumers to ditch the company's products in favor of domestic alternatives, could moderate the sales surge Ives foresees. So, too, could an economic downturn or some other event.

But all else being equal, Ives thinks that sales rebound is coming and it could well send Apple's stock to the stratosphere.

The new 5G phones "will open up the floodgates on iPhone upgrades across the board that [Wall] Street continues to underestimate," he said in his research note.

Got a tip about Apple or another tech company? Contact this reporter via email at twolverton@businessinsider.com, message him on Twitter @troywolv, or send him a secure message through Signal at 415.515.5594. You can also contact Business Insider securely via SecureDrop.

NOW WATCH: The best tech of the decade