Apple eyes historic $3 trillion valuation amid tech surge

The latest indication of big tech’s seemingly inevitable domination on Wall Street is that Apple Inc. is about to become the first corporation to ever reach a market value of $3 trillion. With premarket trade on Friday saw the iPhone maker rise to $192, its gain for the year had already surpassed 46% as of Thursday’s close. The company’s size has increased by more than $900 billion as a result of its year-to-date surge.

The potential achievement of Apple highlights the hegemony of tech mega caps in the overall stock market this year. Due to the group’s outperformance of traditional growth stocks and the possibility of further Federal Reserve interest rate increases, some have begun to doubt the sustainability of the rise which took many strategists off guard. The Nasdaq 100 Index has increased 37% in 2023 due to the growth of big tech. The excitement surrounding AI has contributed significantly to the gain, but investors have also been drawn to the high-quality qualities that Apple possesses in abundance, such as a solid balance sheet, steady income streams, and a strong competitive position.

Apple would be the first to reach the milestone

“The reason Apple has outperformed for more than a decade isn’t that 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,” said Jonathan Curtis, director of portfolio management for Franklin Equity Group. He is not surprised that Apple would be the first to reach the milestone. “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,” Curtis said.

Citi initiated coverage of Apple on Thursday with a buy recommendation, indicating Wall Street’s persistent optimism about the stock, noting that the company’s capacity to keep growing margins was undervalued. It expects the stock to rise by an additional 30%, which would put Apple’s valuation near $4 trillion. When Apple’s market valuation was less than $340 billion and it made up roughly 3.3% of the S&P 500, it first overtook Amazon as the most valuable stock in the world in 2011. It has rarely given up the title since then. It first hit a $1 trillion valuation in the middle of 2018, and in August 2020, it reached a $2 trillion valuation, becoming the first US firm to do so (Saudi Aramco was the first $2 trillion corporation).

Companies of this scale are uncommon, and the only other mega-cap technology and internet firms in the US that belong to this club are Alphabet Inc., Amazon.com Inc., and chipmaker Nvidia Corp., which earlier this year became the first chipmaker to reach the trillion-dollar mark. The only other US stock with a valuation over $2 trillion is Microsoft Corp. While Nvidia, Meta Platforms Inc., and Tesla Inc. have more than doubled in value, surpassing Apple in the year’s gains, its scale provides it with a significant influence on markets, accounting for 7.6% of the weight of the S&P 500 Index. Still, the milestone doesn’t mean smooth sailing for Apple from here. The stock trades at nearly 30 times forward earnings, and while this is down from a 2020 peak above 35, it remains well above its 10-year average multiple of 17.9.

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