- In the short term, no, Apple’s $3 trillion valuation didn’t last, the stock slipped back
- In the medium term, it depends upon iPhone sales continuing to motor ahead
- Apple’s long term valuation depends upon intangibles like vehicles and virtual reality
Apple Inc’s (NASDAQ: AAPL) stock price moved the corporate valuation over $3 trillion – a first for any listed company. Given that inflation is a real thing someone was going to do this first but it is a surprise how fast it happened.
Apple only went through a $2 trillion valuation 16 months ago so a further 50% rise in that short period of time is indeed a surprise. Part of this is simply the rise in stock markets in general, a little bit is that inflation. But the real issue with Apple is the value being ascribed to things we don’t really know about yet. Which is where volatility will come in of course.
Apple’s business depends upon the iPhone, sure, we all know that. The computers might even be interesting to use but they’re hardly material to a company of Apple’s size. Iphones are continuing to sell at the famed Apple gross and net profit margins so all looks rosy in that garden. There’s no particular reason why this shouldn’t continue.
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Well, there are slight clouds on the medium-term horizon, will we all continue to replace phones on a couple to three-year cycle? There are very few sales of phones into new populations these days, the market is replacements. So, as the base tech moves from 3G to 4 and then 5G sure, there’s that replacement market. But that tech cycle is slower than the average individual replacement cycle. So, that could change.
But in the longer term that’s not what is likely underpinning Apple’s stock price and market valuation. Rather, it’s the possibilities of entirely new markets which seem to excite. It’s possible to look at Tesla’s valuation, note that Apple has a car project and do some sums. Or perhaps virtual reality will become a real thing in terms of significant market size?
Both are of course possible. But Apple is hitting up against the law of large numbers. To shift a $3 trillion valuation requires a large and very profitable business. Becoming the Ford (valuation perhaps $50 billion) of AI driven cars wouldn’t in fact make much difference to Apple. It would be necessary to match the Tesla valuation to seriously move the dial on that Apple corporate valuation. The same is true of virtual reality, or the metaverse perhaps. Beating Facebook doesn’t do it, it’s necessary to build a seriously large company again.
It’s actually rare for a company to do this, to enter into a new business and dominate it. In fact, the usual example of the rarity of it is Apple itself. That move from near bust as a computer maker, through the iPod and into iPhones. There are very few indeed companies that have done this (Nokia moving from rubber boots into phones is another rarity).
So, if it is to be done then a reasonable bet is upon Apple doing it. But it is indeed a rarity that businesses optimised for one market and technology manage to leap to a commanding position in another.
The Apple $32 trillion valuation can, just about, be supported on current business lines and prospects for them. But reality is that there’s a big influence of things that might happen, like the cars. Volatility in the Apple stock price might therefore be expected.