Tech’s stock market dominance is no longer a Wall Street fear as Apple is close to becoming first company valued at $1tn
Apple is just a couple of pips away from becoming the first company ever to be valued at $1tn, a symbolic threshold that further shows just how much tech companies have come to dominate the US stock market.
On Friday, Apple was valued at over $940bn – “just” $60bn short of a figure no other listed company has ever achieved. It’s not the only tech company nearing $1tn – Amazon is currently valued at over $820bn.
But – for now – Apple is the clear leader. Even notorious tech-skeptic investor Warren Buffett has put his stamp of approval on the company, buying 75m shares and injecting new confidence in the tech titan.
When Steve Jobs died in 2011, some worried the company would struggle. But under his handpicked successor Tim Cook, Apple has more than trebled the $300bn the company was then valued at.
Apple still may not be the first company to pass the $1tn mark. The tech giant could be beaten by Aramco, the Saudi Arabian oil producer that could be valued at $2tn when it finally goes public next year.
But assuming $1tn is Apple’s prize to grasp, there will be more questions asked as to whether tech now takes up too much weight on US stock indexes.
Add the value of the “Fang” companies – Facebook, Apple, Amazon, Netflix and Google – together and throw in Microsoft and the tech giants are worth close to $4tn. Just in the last six weeks more than $300 billion has been added to the value of the group. Tech currently makes 26% of the S&P 500.
For some, tech’s dominance of the stock markets might bring back memories if the dotcom crash of 2002. But that’s not a fear on Wall Street these days – where the Fangs are broadly regarded as fairly valued and perceptions of tech have changed.
Scott Kessler at CFRA Research says his firm has a buy opinion on almost all the tech giants, including the Fangs.
“People see the performance of the technology sector and focus on the largest and get concerned,” he said. “It’s harder at times to get comfortable with the valuation constructs for Amazon and Netflix. But the short answer is, we’re not concerned. We see strong fundamentals, continuing growth, benefits related to tax reform and continuing out-performance.”
A billion dollars for Apple is important only when you look at the broader tech space, says Daniel Ives, head of technology research at GBH Insights. Concern over an overweighting of tech stocks in the market is really a problem of definition, since tech is what consumers are purchasing.
Apple at $1tn, Ives says, “speaks to the fundamentals and market dynamics that are moving technology to the forefront. The fundamentals are backing a trillion-dollar market cap. It’s not any kind of bubble. Apple is starting to get rerated as a software services company, and this speaks to a new age for tech stocks. These are unique secular growth stories that are driving the market higher and the fundamentals are backing up those moves.”
Despite slowing growth in smartphones, Cook said the first three months of 2018 was the “best quarter ever for services, and momentum there continues to be incredibly strong”.
Apple sales increased 16% in the first three months of 2018, and shares are up more than 13% this year – considerably better than the overall market. For Apple to hit a $1tn market valuation, the stock would need to go up just another 6% to $202.30 a share.
“We had all-time record revenue from the App Store, from Apple Music, from iCloud, from Apple Pay and more, all of which are a powerful illustration of the importance of our huge active installed base of devices and the loyalty and engagement of our customers,” Cook said.
“For several years we’ve been trading Apple as company that makes iPhones and some other stuff,” says Eric Ross at Cascend Securities.
“What’s happening is that Apple has an enormous install base of iPhone users and other Apple products so they are able to transform for an iPhone manufacturing company to an ecosystem company. We think they’re going to take their user base and sell products and services, including the iPhone, into it.”
And Apple is not facing the same headwinds buffeting Facebook and Google as consumers and government officials question their commitment to privacy and the true cost of “free” – read ad-funded – services.
Unlike competitors Google and Facebook, Apple has in recent weeks been able to capitalize on its privacy-friendly approach to data. This week, Apple’s CEO, Tim Cook, said he believed privacy is a basic fundamental right, but warned that tracking of internet data is “totally out of control”.
With privacy concerns growing some of the Fangs may stumble – but others are keen to join the pack. Uber and Airbnb are keen to go public. China has a wave of tech companies that could challenge the valuations of US rivals. Apple may be the first to reach $1tn, but it is unlikely to be the last