Advertisement
investing

Apple (AAPL): $1 Trillion Is Just the Beginning

Apple is the first U.S. company to hit the $1T milestone; here’s why AAPL shares can climb even higher.

Apple (AAPL, $201.50) became the first American company to become worth more than $1 trillion when it hit $207.05 per share in intraday trading on Thursday, Aug. 2. 

The question now is whether it can build on such a lofty number.

The answer is almost certainly yes.

Like the four-minute mile or breaking the sound barrier, the idea of a company with a market capitalization – the share price multiplied by the number of outstanding shares – of more than a trillion dollars was once almost unthinkable. PetroChina (PTR), the Chinese oil giant, topped the trillion-dollar mark on its first day of trading in 2007, but the stock collapsed soon thereafter.

Advertisement - Article continues below

Part of the argument against a company hitting a trillion dollars in market value – and staying there – is finance’s so-called law of large numbers. As a company gets bigger, its growth rate tends to slow down. After all, it’s easier to double revenue from $1 million to $2 million than from $100 billion to $200 billion. It’s the difference between adding $1 million in sales and $100 billion in sales.

But there’s no law against a company being worth more than $1 trillion.

Heck, Amazon.com (AMZN, $877 billion), Google parent Alphabet (GOOGL, $852 billion) and Microsoft (MSFT, $825 billion) aren’t all that far behind the vaunted trillion-dollar level. And as long as these companies continue to generate long-term earnings growth – as virtually every analyst expects – their share prices will continue to rise over the long haul.

Advertisement
Advertisement - Article continues below

In Apple’s case, the outlook certainly looks bright.

What Will Drive Apple Stock Going Forward?

Apple’s final push to the $1 trillion mark came on the back of Tuesday night’s fiscal-third-quarter earnings report – one that encouraged Wall Street’s pros and individual investors alike by most measures. Most notably, profits and revenues both came in above analysts’ consensus estimates.

Advertisement - Article continues below

Canaccord Genuity analyst T. Michael Walkley, who rates AAPL stock at “Buy,” writes that iPhone sales continue to defy his expectations. The company sold 41.3 million units, versus Canaccord’s estimates for $40.5 million.

It turns out that the high-priced iPhone X didn’t turn off customers (unit sales were essentially flat year-over-year) as much as it raised the company’s overall average selling prices. Meanwhile, the Services division – which includes the App Store, Apple Music, Apple Care, iCloud and Apple Pay – is becoming an increasingly important driver of revenue too.

When it comes to the nearly $1,000 iPhone X, Walkley notes that Apple is taking share from its primary premium-tier competitor Samsung. It’s a trend the analyst expects to continue to accelerate through next year and beyond.

“Apple’s growing share of the high-end smartphone market positions the company with a strong, loyal customer base that could enable Apple to maintain the high levels of annual iPhone sales despite the higher (selling prices) for the iPhone X,” Walkley says. 

Advertisement - Article continues below

Higher average selling prices equal higher profit margins, by the way. So much for the theory that the iPhone X was too expensive.

And just for good measure, Apple repurchased $20 billion in stock during the quarter – $10 billion under its new $100 billion buyback program, and $10 billion under its prior authorization.

True, Apple’s earnings growth rate is slowing down. Analysts surveyed by Thomson Reuters expect earnings to increase at an average pace of 12.8% a year for the next five years, a decrease from an average annual clip of 14.3% over the past five years.

That’s a far cry from Apple becoming some kind of poky utility, however. And with shares priced at just 15.2 times expected earnings, the market has adjusted to the new reality.

Bull markets don’t last forever. Stocks in general will, of course, have to cooperate.

But given Apple’s fundamentals and its reasonable valuation, the trillion-dollar market cap looks a lot more like a milestone than it does a wall.

Advertisement
Advertisement

Most Popular

7 Surprisingly Valuable Assets for a Happy Retirement
happy retirement

7 Surprisingly Valuable Assets for a Happy Retirement

If you want a long and fulfilling retirement, you need more than money. Here are the most valuable retirement assets to have (besides money), and how …
August 3, 2020
Retired? Good Luck Getting a Mortgage, Even If You’re Wealthy
mortgages

Retired? Good Luck Getting a Mortgage, Even If You’re Wealthy

One 70-year-old’s story highlights the challenges. Prepare for more paperwork and hoops to jump through than you could imagine.
August 2, 2020
Turning 60 in 2020? Expect Lower Social Security Benefits
Coronavirus and Your Money

Turning 60 in 2020? Expect Lower Social Security Benefits

When you file for Social Security, the amount you receive may be lower.
July 30, 2020

Recommended

Bonds: 10 Things You Need to Know
Investing for Income

Bonds: 10 Things You Need to Know

Bonds can be more complex than stocks, but it's not hard to become a knowledgeable fixed-income investor.
July 22, 2020
Kiplinger's Weekly Earnings Calendar
stocks

Kiplinger's Weekly Earnings Calendar

Check out our earnings calendar for the upcoming week, as well as our previews of the more noteworthy reports.
August 2, 2020
Stock Market Today 7/31/20: Big Tech Roars, Everyone Else Snores
Markets

Stock Market Today 7/31/20: Big Tech Roars, Everyone Else Snores

Blowout earnings from Apple (AAPL), Amazon.com (AMZN) and Facebook (FB) led another charge by the Nasdaq on Friday.
July 31, 2020
Apple’s Stock Split Could Dampen the Dow
blue chip stocks

Apple’s Stock Split Could Dampen the Dow

iPhone maker Apple (AAPL), currently the most important stock in the blue-chip average, will see its influence decline substantially after a 4-for-1 s…
July 31, 2020