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Apple makes history with market value exceeding $3 trillion

Apple has achieved a major milestone on Wall Street, becoming the first company to surpass a market value of US$3 trillion ($4.5 trillion). The tech giant’s remarkable rally has added over $983 billion to its size this year alone, solidifying its position well ahead of other companies.

The stock gained 2.3% on Friday (Saturday AEST), contributing to the Nasdaq 100 Index’s best-ever first half performance. The rally underscores the continued dominance of tech megacaps in the equity markets.

Apple’s surge has surprised many strategists, raising concerns about its sustainability amidst the possibility of further Federal Reserve interest rate hikes. However, investors remain optimistic about the growth potential of artificial intelligence and have been attracted to Apple’s strong balance sheet, reliable revenue streams, and robust competitive position.

Jonathan Curtis, Director of Portfolio Management for Franklin Equity Group, explained, “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.”

Curtis further highlighted Apple’s exceptional qualities, stating, “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.”

Wall Street’s ongoing optimism about Apple is evident as Citi initiated coverage of the stock with a buy rating, emphasising that its ability to expand margins is underappreciated. Citi sees a potential additional upside of about 30% for the stock, which would bring Apple close to a $4 trillion valuation.

Apple first became the world’s most valuable stock in 2011 when its market cap was below $340 billion, accounting for approximately 3.3% of the S&P 500.

Since then, it has consistently maintained its position. In mid-2018, Apple surpassed $1 trillion in value, followed by a $2 trillion valuation in August 2020, making it the first US company to reach that milestone. Although briefly reaching the $3 trillion mark in early 2022, the stock failed to close above it. However, the recent rally has fully erased that downward trend.

Companies with market values of this magnitude are rare, and in the US, only a select few technology and internet stocks make up the trillion-dollar club. This exclusive group includes Alphabet, Amazon, and chipmaker Nvidia, which became the first trillion-dollar chipmaker earlier this year. Microsoft is the only other US stock with a valuation exceeding $2 trillion.
While Apple is not the top gainer of the year – with Nvidia, Meta Platforms, and Tesla more than doubling in value – its size gives it significant influence over markets, representing 7.7% of the weight of the S&P 500 Index.

Despite the milestone, challenges lie ahead for Apple. The stock currently trades at around 30 times forward earnings, down from its peak of over 35 in 2020 but still well above its 10-year average multiple of 17.9.

Analysts have been cautious about the stock amid this year’s rally, with fewer than 70% of firms tracked by Bloomberg recommending buying the stock, the lowest ratio among trillion-dollar companies. The consensus rating for Apple is also near its lowest level since November 2020, and recent downgrades, including one from UBS, have contributed to weaker sentiment.

Furthermore, Apple’s stock price has surpassed the average price target, suggesting that analysts are not anticipating significant additional gains from current levels.
While Apple celebrates this historic milestone, the road ahead may present challenges as investors closely monitor the company’s performance and evaluate its potential for sustained growth.