Apple sits at the top of the tree after hitting $2trn market capitalisation

The technology giant has become the first US company to reach a market value of $2trn. But its life may get harder now.

Woman and child taking a selfie © Apple Inc
The iPhone proved a “game-changer”
(Image credit: © Apple Inc)

It took Apple almost 40 years to reach a market value of $1trn. But it took it just two more to hit $2trn, says Jack Nicas in The New York Times. Last Wednesday its shares climbed 1.4% to $468.65, making it the first US corporation to push through the $2trn barrier and cementing its title as the world’s most valuable public company. This is a “new milestone” for the group, which was established in 1976 and floated in 1980. It has been responsible for “world-changing products”, such as the Macintosh computer, the iPod and the iPhone.

The most important of these products was the iPhone, says Ben Martin in The Times. Launched in 2007, it created a brand “so strong and so consistent” that people “just got locked in”. It has a “minimal” attrition rate, because “once you’ve got an iPhone you just don’t switch”.

However, Apple’s more recent success has been due to the expansion of its services division, which has reduced the group’s reliance on smartphone sales; these now account for less than half of overall revenues. Apple’s “plethora of offerings”, including its App Store, music service and Apple Pay, also gives it a “recurring revenue stream”.

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Riding the tech wave

Apple has also benefited from the general surge in technology stocks that has taken place since March, says Amrith Ramkumar in The Wall Street Journal. With “few attractive alternatives” to large tech stocks, many experts expect “other tech behemoths” to join Apple in the $2trn club. Amazon and Microsoft are currently valued at around $1.6trn, while Facebook’s market capitalisation is $750bn.

Don’t count on it, says the Financial Times. It’s true that investors have shown a “big appetite” for Big Tech in recent months as the world has turned to technology to “stay connected”. Apple has also so far managed to defy the “traditional arc” of a pioneering business by staying ahead of the field.

However, the entire sector is threatened by tighter regulation amid heightened concerns over Big Tech’s “increasing dominance”. Some suggest that tech giants “should be subject to the same regulatory burden as traditional public utilities”, while Apple’s Chinese revenues and manufacturing operations could be hit by any US-China trade war.

In any case, while Apple might be a “great company” its shares aren’t necessarily a good investment, says John Authers on Bloomberg. The stock trades at 35 times forward earnings, the highest valuation since 2007. This seems “over-optimistic”. Plenty of growth is already priced in, while it will henceforth be difficult to find a new product to act as a “game-changer” like the iPhone. The price/earnings ratios of the other four technology stocks (Facebook, Amazon, Netflix and Alpahabet/Google) are also in “nosebleed” territory.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri