Apple is rocketing, but is it too big to go higher?
As Apple Inc. shares hit an all-time high this week with its largest gains in nearly six months, investors are left wondering if it’s worth buying the tech giant at this point, or whether it can edge higher still.
The stock rose 4 per cent from last Friday’s close to an inter-day high of US$154.70 on Sept. 1 before easing to end the session at US$152.51. The company is valued at a colossal US$2.5 trillion — making it the largest listed company by marketcap in the world. It’s grown about US$300 billion since January, leaving companies that are still considered giants, far behind.
The second-largest market capitalization is Microsoft Corp. with a valuation of $2.28 trillion, followed by state oil company Saudi
Aramco at US$1.87 billion. Amazon clocks in at US$1.76 billion.
Apple’s stock benefited this week from a combination of company announcements and macroeconomic factors. The somewhat troubled Apple TV+ unit, which lags other streamers such as Netflix and Disney, scored some star power by signing Scarlett Johansson and Jon Stewart for content deals.
Analysts posted high expectations for the looming iphone 13, noting that its emergency message feature will allow remote users — think ocean sailors and mountain climbers — to beam at low-earth orbit satellites, and how supply chains have improved during the pandemic ahead of the phone’s launch this month.
Word that the U.S. Federal Reserve doesn’t plan to raise interest rates until the second half of next year tapped bonds yields lower, maintaining the low-interest environment that helps tech stocks. As well, the Fed’s purchase of bonds, injecting capital into the market, will continue until there is “substantial further progress” in employment, even though the bank may begin to start tapering the amount this year.
A U.S. government report on employment due on Friday is expected to have an impact on stock markets.
One option for investors is to consider Apple as a play on the rebounding economy’s inflation. The company, which is essentially a luxury brand marketing to people who can afford it, is likely to outperform other brands that won’t pass on higher costs to consumers. The extent of that outperformance will depend on how much the price increase covers the up to 5 per cent additional costs in components expected and whether it will dent consumer demand.
For the three years to Aug. 24, Apple’s total shareholder return, assuming all dividend payments are reinvested, was 192 per cent, placing it 13th in the S&P 500, according to regulatory filings. Other filings show Apple CEO Tim Cook last week cashed in more than US$750 million in stock awards he was granted when taking over from Steve Jobs in 2011.
The stock has increased tenfold in the decade since. Market capitalization was at US$349 billion in 2011. Cook oversaw sales and net profit more than doubling to US$274 billion and US$57 billion last year, respectively.
Longer term, growth may be hampered by Apple’s sheer size: it is already so big, large growth becomes more difficult, notes The Economist. However, iphone sales haven’t dipped significantly yet, and the company has grown its services arm, the App Store, from US$11 billion in sales a decade ago to US$65 billion.
The need for its next big product to augment the sales of the Airpod earbuds and watches that are doing the heavy lifting now, will weigh on the company as it seeks to develop smart iglasses and an icar. Both have suffered delays. A new vehicle faces massive competition from Telsa Inc. and mainstream automakers. Apple’s Homepod smart speaker lags Amazon’s and Google’s offerings.
On Wednesday, Apple said it’s working with several U.S. states to enable residents to add their driver’s licence or state ID to its Wallet app on their iphone and Apple Watch.
“The Transportation Security Administration (TSA) will enable select airport security checkpoints and lanes in participating airports as the first locations customers can use their driver’s licence or state ID in Wallet,” the company said. The company is hoping to expand the Wallet’s utility, but it also could ensnare it in privacy — an issue that has dogged its tech rivals.
Finding new room in products may also force the company to take on the core businesses of others in Big Tech, such as its own search engine to try to rival Google, or using its consumer data to enter online advertising, an area dominated by Facebook Inc. and Google.
That would mean expensive competition against a cohort Apple has so far avoided. Plus, regulators are keen to keep Big Tech in line. Apple’s App Store is likely to face increased scrutiny in Europe even if it escapes tighter investigation at home, in part by using its environmental credentials as a badge. Apple says it want to be carbon neutral by 2030.
Apple could also be squeezed by its reliance on China, notes The Economist. The country builds most of its components and accounts for 19 per cent of sales as Beijing becomes more authoritarian in its use of personal data and its treatment of tech companies. Apple is walking a tight line between the West’s policy to contain the Asian giant and the unpredictable nationalism of Chinese leaders.