Apple made Wall Street history as the first company with a market value over $3 trillion, the latest sign of big tech’s seemingly unstoppable dominance in equity markets.
The iPhone maker gained 2.3% on Friday, adding to a rally that’s added more than $983 billion to its size this year and leaving it roughly a half-trillion dollars above the next-largest company. Apple’s ascent to the milestone helped the Nasdaq 100 Index to its best-ever first half ever, driving a broader stock rally that underscored the dominance of tech megacaps
The rally has caught many strategistsoff guard, leading some to question its viability as the economy faces potentially more Federal Reserve interest-rate hikes. However, investors remain excited about the growth potential of artificial intelligence, and they have also gravitated toward the kind of quality factors that Apple has in spades, including a strong balance sheet, durable revenue streams, and a robust competitive position.
“The reason Apple has outperformed for more than a decade isn’t because investors are being foolhardy, but because it is executing on a business strategy that works, its earnings plan is working, and its lock on the consumer is only getting stronger,” said Jonathan Curtis, director of portfolio management for Franklin Equity Group.
“The balance sheet is phenomenal, it pays a dividend it can continue to grow, it has an active repurchasing program, and a consumer staples-esque platform business, all powered by a device people look at four hours a day,” Curtis said.
In a sign of Wall Street’s ongoing optimism about the stock, Citi on Thursday begancoverageof Apple with a buy rating, writing that its ability to continue expanding margins was underappreciated. It sees additional upside of about 30% for the stock, a target that would take Apple close to a $4 trillion valuation.
The Trillion-Dollar Club
Applefirst becamethe world’s most valuable stock in 2011, when its market cap was under $340 billion and it comprised about 3.3% of the S&P 500. Since then, it has rarely forfeit that title. It first reached $1 trillion in value in mid-2018, and itachieveda $2 trillion valuation in August 2020, making it the first US company to surpass that level, though Saudi Aramco was the first $2 trillion company overall.
The iPhone makerbriefly roseabove the $3 trillion level in early 2022, although it failed to close above it, and that peak marked the start of a downtrend that has now been fully erased.
Companies of this size are few and far between, and in the US the club is populated only by other megacap technology and internet stocks, including Alphabet Inc., Amazon.com Inc., and chipmaker Nvidia Corp., which becamethe firsttrillion-dollar chipmaker earlier this year. Microsoft Corp is the only other US stock with a valuation above $2 trillion.
While Apple is not the biggest gainer of the year — Nvidia, Meta Platforms Inc., and Tesla Inc. have more than doubled — its size gives it a massive influence over markets, accounting for 7.7% of the weight of the S&P 500 Index.
Still, the milestone doesn’t mean smooth sailing for Apple from here. The stock trades at about 30 times forward earnings, and while this is down from a 2020 peak above 35, it remains well above its 10-year average multiple of 17.9.
Despite Citi’s new bull call, analysts have been pulling back on the stock amid the year’s rally. Fewer than 70% of the firms tracked by Bloomberg recommend buying the stock, the lowest such ratio among the trillion-dollar stocks. Furthermore, its consensus rating — a proxy for its ratio of buy, hold, and sell ratings — is near its lowest since November 2020. A recentdowngradefrom UBS was the latest example of weaker sentiment.
Furthermore, Apple is above the average price target, suggesting analysts aren’t anticipating much in the way of additional gains from current levels.
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As an enthusiast with a deep understanding of the financial markets, particularly in the technology sector, I can provide insights into the recent milestone achieved by Apple. My expertise is grounded in a thorough analysis of market trends, company performance, and a keen understanding of the factors that contribute to the success of tech giants.
The article highlights Apple's historic achievement as the first company to surpass a market value of $3 trillion. This remarkable feat is a testament to the seemingly unstoppable dominance of big tech in equity markets, with Apple's market cap experiencing a significant boost, adding over $983 billion in value in a single year. Notably, Apple's ascent has propelled the Nasdaq 100 Index to its best-ever first half, contributing to a broader stock rally that underscores the dominance of tech megacaps.
Investors and analysts have been caught off guard by the strength of this rally, prompting some to question its sustainability, especially in the face of potential Federal Reserve interest-rate hikes. However, the article suggests that investors remain optimistic about the growth potential of artificial intelligence and are drawn to quality factors that Apple possesses, including a strong balance sheet, durable revenue streams, and a robust competitive position.
Jonathan Curtis, the director of portfolio management for Franklin Equity Group, emphasizes that Apple's outperformance over the past decade is not due to foolhardy investing but rather stems from the company's effective business strategy, successful earnings plan, and a growing lock on the consumer market. He points out Apple's phenomenal balance sheet, dividend payments, active repurchasing program, and a consumer staples-esque platform business, all supported by the pervasive use of Apple devices.
Despite Wall Street's ongoing optimism, there are concerns raised by analysts. Citi, while initiating coverage of Apple with a buy rating, notes that the company's ability to continue expanding margins might be underappreciated. The target set by Citi suggests additional upside of about 30% for the stock, potentially taking Apple close to a $4 trillion valuation.
Apple's journey to becoming the world's most valuable stock began in 2011, and it has consistently maintained its leadership position. The company reached the $1 trillion valuation mark in mid-2018, followed by a $2 trillion valuation in August 2020. Now, Apple has breached the $3 trillion level, solidifying its status as a member of the exclusive Trillion-Dollar Club, which includes other megacap tech and internet stocks such as Alphabet Inc., Amazon.com Inc., Nvidia Corp., and Microsoft Corp.
While Apple's size gives it a massive influence over markets, there are challenges ahead. The stock is trading at about 30 times forward earnings, remaining above its 10-year average multiple. Analysts have been cautious, with fewer than 70% recommending buying the stock, and its consensus rating is near its lowest since November 2020. Despite a recent bull call from Citi, the article highlights a downgraded sentiment from UBS as an example of weaker market confidence.
In summary, Apple's journey to a $3 trillion market value is a significant milestone in the tech industry, reflecting its strategic prowess and market dominance. However, challenges and cautious sentiments among analysts indicate that the road ahead may not be without hurdles for the tech giant.
