Search
  • Lars Haugen

Apple is Worth $2 Trillion

Updated: Sep 1, 2020

Last Wednesday Apple's market cap hit $2 trillion, and at the time of writing currently stands at $2.17 trillion.


That is a big number.


It actually makes Apple the largest company in the world (by market cap).


Apple share price

Source: googlefinance.com



What has driven this surge in price?


It's impossible to say for sure, but it is likely a combination of things.


Firstly, the market seems to be increasingly confident in CEO Tim Cook since Steve Jobs' passing in 2011.


While Jobs was known as the visionary, giving us innovative creations such as the iPod, iPad and iPhone, investors felt that Cook wouldn’t continue the same journey and bring new household classics.


That is somewhat true - instead Apple increasingly focused on its services (e.g Apple Pay, App Store fees, and other income from iOS apps or warrantees). These build steadier income compared to a one-off iPhone purchase. 


Services have grown from 6% of revenues in 2015, to 22% in 2020.


Tim Cook's leadership has paid off, and the stock price is up around 875% since he took the helm in August 2011.


Secondly, it's a well known fact that the FAANG (Facebook, Apple, Amazon, Netflix and Google/Alphabet) stocks have been on a tear over the last few years. A lot of money has been flowing into these stocks, and their valuations have soared. 


And with the recent money printing (as a reaction to Covid-19), even more money has flowed into these stocks - Apple is up more than 100% since the bottom in March 2020. 


The company is now trading at a price/earnings multiple of 38, which is more than double its five year average of 17. 



Apple P/E Ratio

Source: macrotrends.com



Thirdly, it's a great company, with fat margins and a high return on equity.


It's such a great company, in fact, that it caught the attention of Warren Buffett. It's currently his largest position - worth $113 billion.


Given that it's a great company and that Buffett likes it so much, would we invest at this point?


The answer is no.


Don't get us wrong, we like the company, but the valuation is simply too high at the moment. 


It seems like a lot of hot money has flowed into the company lately, and the stock price has shot up.


That doesn't mean that we predict the share price will fall any time soon (although it would not surprise us); it simply means that buying at these levels would not be consistent with our investing principles.


We will keep an eye on Apple going forward and see how the situation develops. It will be interesting to see if Buffett unloads any of his shares given the elevated valuation.


We will keep you posted.


All the best,


Lars and Roshni

34 views