What do Apple (NASDAQ: AAPL) and Vertex Pharmaceuticals (NASDAQ: VRTX) have in common? At first glance, not much. The former is a consumer tech leader while the latter operates in the biotech industry.
One thing they do share, though, is that they've made their long-term shareholders happy. Apple and Vertex Pharmaceuticals have outperformed the market over the past decade, and even longer. Further, there are good reasons to believe they can continue delivering outsized returns for the next 10 years and beyond.
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Apple is facing multiple issues -- among them, a slowdown of sales in China, scrutiny from lawmakers and regulators over potentially anticompetitive practices, and the general perception that the iPhone is no longer the growth driver it once was. Despite that, the company's shares are up by 27% this year, in line with the broader market.
Several things explain Apple's performance this year, some of which could help drive strong growth in the next decade.
First, the company finally made a move in artificial intelligence (AI) with the debut of Apple Intelligence, a suite of features available in some of its latest devices. This could start a cycle of hardware upgrades as Apple's loyal customers try to get a hold of these new nifty features.
Its work in AI isn't done, though. As CEO Tim Cook said during the fiscal fourth-quarter earnings call in October: "This is just the beginning of what we believe generative AI can do, and I couldn't be more excited for what's to come."
Second, Apple's results remain pretty decent, and its services segment is doing especially well. In its fiscal Q4, which ended Sept. 28, total revenue rose 6% year over year to $94.9 billion, but services revenue increased by 12% year over year to $25 billion. Apple has an installed base of more than 2 billion devices and more than 1 billion paid subscriptions across the range of the services it offers. Though services made up just 26% of total revenue, the segment accounted for 42% of the company's gross margin in the quarter.
Progress on that front will have a massive impact on Apple's revenue and, especially, its margins and bottom line. Though the company's issues are real, Apple's track record, solid underlying business, capacity for innovation, and billions of dollars in free cash flow it generates yearly make the stock worth holding onto for the long haul.
And don't forget about the dividend. Apple has increased its payouts by more than 112% in the past decade. Automatically reinvesting the dividend will boost the long-term returns of those who opt to do so.
Vertex Pharmaceuticals is changing things up. Over the past decade, the company has made its money almost entirely from drugs that treat the underlying causes of cystic fibrosis. Though the biotech has maintained a monopoly in this market, management thought it wise to diversify its lineup, as other drugmakers might eventually succeed in developing competing therapies for the rare lung disease.
Last year, Casgevy, a gene-editing treatment that the company developed with CRISPR Therapeutics, earned approval from the Food and Drug Administration for patients with two rare blood diseases. Vertex Pharmaceuticals also has a potential medicine for acute pain that is being considered for approval in the U.S. And its pipeline features a potential medicine for APOL-1-mediated kidney disease and another one for IgA nephropathy (another kidney disease), both of which are in phase 3 trials. Further, it's working on a potential functional cure for type 1 diabetes.
Meanwhile, its cystic fibrosis franchise is still going strong. In the third quarter, Vertex Pharmaceuticals' revenue increased by 12% year over year to $2.77 billion. The company is also on the verge of earning approval for a newer, better cystic fibrosis triple-drug therapy.
There is still some room to grow in Vertex's core market. However, in the next 10 years, its portfolio will be utterly transformed. A single franchise that still generates plenty of money will be strengthened by the addition of medicines in multiple other indications. That should drive strong top-line growth for a while.
Vertex Pharmaceuticals has a record of innovation, so its long-term prospects remain strong.
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Prosper Junior Bakiny has positions in Vertex Pharmaceuticals. The Motley Fool has positions in and recommends Apple and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.