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We recently updated the Trefis price estimate for Apple (NASDAQ: AAPL) from $365 to $400, in part to reflect higher expectations for the iPhone and iPad. While tweaking our model, we thought it might be interesting to see what drivers could justify a $500 stock price based on where we feel potential upside to our current estimates exist.

We considered how Apple currently stacks up versus competitors such as Google (NASDAQ:GOOG), RIM (NASDAQ:RIMM) and Motorola (NASDAQ:MOT), and we considered the outlook of the smartphone and tablet markets. There are two key areas that could drive meaningful revisions to our estimates and drive a new $500 price estimate: 1) iPhone market share of mobile phones and 2) the number of iPads sold.

+$55 from Higher iPhone Market Share of Mobile Phones

IDC recently published that as of 3Q10, Apple holds 4.1% market share [1]. The Trefis community forecasts that Apple’s market should rise from currently around 4% in 2010 to reach 14% by the end of the forecast period. If Apple’s mobile market share were to reach 17% by the end of the Trefis forecast period, that would imply $55 of upside to the current Trefis price estimate.

Created using the Trefis App on Seeking Alpha

Given the popularity of the iPhone 4, Apple’s access to large new markets such as China and an expected lift from the iPhone’s widely expected distribution agreement through Verizon (NYSE:VZ) in the US, Apple will continue to gain market share in the mobile phone market.

The company’s share increase could come at the expense of players like RIM and Nokia (NYSE:NOK). We estimate that RIM will have about 8% mobile phone market share by the end of the Trefis forecast period; however, this may prove to be optimistic if business customers increasingly opt for iPhones or Android-based smartphones.

For Nokia, we expect that the company will continue to lose mobile phone market share both in emerging and developed markets. For emerging markets (accounting for about 50% of Nokia’s value), we expect Nokia’s mobile phone market share to decline from nearly 40% today to under 34% by the end of our forecast period.

+$45 from Higher iPad Unit Sales

Following the successful launch of the iPad, the tablet market has blossomed and Apple controls a large part of this market. Despite the flurry of new tablets coming to market, we believe that competitors will have trouble catching up to Apple’s lead due to the iPad’s popularity versus other devices and the support of its well known and easy to use App Store.

iSuppli estimates that iPads shipped will reach 12.8, 43.7 and 63.3 million for the years 2010-2012 [2]. By increasing the forecast below to reach iSuppli’s estimate of about 63 million iPads sold in 2012 and keeping a slower growth rate beyond 2012, our analysis suggests that iPad units sold could reach nearly 90 million by the end of the Trefis forecast period. This would imply $45 of upside to the current Trefis price estimate.

Created using the Trefis App on Seeking Alpha

Based on our current $400 Trefis price estimate for Apple’s stock and the $100 of additional upside attributable to the scenarios above, we would reach a $500 Apple stock. In the $500 Apple stock scenario, iPhones would account for about 51% of the stock and iPad would contribute about 18%.

Notes:

  1. IDC release
  2. iSuppli release

Disclosure: No Positions

Source: What Could Justify a $500 Apple Stock Price?