Apple has achieved a historic milestone on Wall Street by becoming the first company to reach a market value of over $3 trillion. This accomplishment highlights the immense dominance of big tech in the equity markets. The company’s shares climbed by 2.3% on Friday, contributing to a rally that has increased its size by more than $983 billion this year. As a result, Apple is now half a trillion dollars ahead of its closest competitor. The company’s success has also played a significant role in driving the Nasdaq 100 Index to its best-ever first half and fueling a broader stock market rally, firmly establishing the dominance of tech mega-caps.
Despite the unexpected nature of this rally, some strategists have begun to question its sustainability, particularly in light of potential Federal Reserve interest rate hikes. However, investors remain enthusiastic about the growth potential of artificial intelligence. They have also developed a preference for the qualities that Apple possesses, such as a robust balance sheet, reliable revenue streams, and a strong competitive position.
According to Jonathan Curtis, the director of portfolio management for Franklin Equity Group, Apple’s consistent outperformance is not due to investors’ recklessness, but rather the company’s effective execution of a successful business strategy. The company’s earnings plan, its lock on the consumer market, and its powerful device that people spend four hours a day looking at all contribute to its success. Additionally, Apple’s phenomenal balance sheet, dividend payments, active share repurchases, and consumer staples-like platform business further enhance its appeal.
The optimistic sentiment towards Apple is apparent in Wall Street too, as Citi started covering the company with a buy rating, emphasizing that the market underappreciates Apple’s ability to expand its margins. Citi predicts that the stock has the potential to increase by 30%, which would position Apple at a valuation close to $4 trillion.
In terms of market capitalization, Apple initially claimed the title of the world’s most valuable stock in 2011 when it was worth under $340 billion. Since then, it has seldom relinquished this position. In mid-2018, it became the first company to reach a $1 trillion valuation, and in August 2020, it achieved a $2 trillion valuation, surpassing that level before any other US company. However, Saudi Aramco was the first overall company to reach a $2 trillion market cap. Although Apple briefly exceeded the $3 trillion mark in early 2022 but failed to close above it, its recent rally has now erased any previous losses.
It is worth noting that companies of Apple’s size are a rarity, particularly within the US market. Only a handful of technology and internet stocks, including Alphabet Inc., Amazon.com Inc., and chipmaker Nvidia Corp., share the exclusive trillion-dollar club. Nvidia also became the first trillion-dollar chipmaker earlier this year. Microsoft Corp is the only other US stock with a valuation above $2 trillion. Apple’s sheer size grants it significant influence over the markets, accounting for 7.7% of the weight of the S&P 500 Index.
However, reaching the $3 trillion milestone does not guarantee smooth sailing for Apple moving forward. Its stock currently trades at about 30 times forward earnings, which, although lower than its peak of over 35 in 2020, still exceeds its 10-year average multiple of 17.9. Despite Citi’s optimistic outlook, analysts have been more hesitant about the stock, with fewer than 70% of firms surveyed by Bloomberg recommending a buy rating. This ratio is the lowest among trillion-dollar companies. The consensus rating for Apple is also near its lowest point since November 2020, indicating weaker sentiment. UBS’s recent downgrade is a testament to this trend.
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