Apple moves closer to $1tn mark

Apple shares hit a record on Wednesday, pushing the market value of the tech giant closer to the $1 trillion mark. 

Background 

Apple Inc. is an American multinational technology company headquartered in Cupertino, California that designs, develops, and sells consumer electronics, computer software, and online services. It was founded by Steve Jobs, Steve Wozniak, and Ronald Wayne in April 1976 to develop and sell Wozniak's Apple I personal computer. 

The company's hardware products include the iPhone smartphone, the iPad tablet computer, the Mac personal computer, the iPod portable media player, the Apple Watch smartwatch, the Apple TV digital media player, and the HomePod smart speaker. Apple's software includes the macOS and iOS operating systems, the iTunes media player, the Safari web browser, and the iLife and iWork creativity and productivity suites, as well as professional applications like Final Cut Pro, Logic Pro, and Xcode. Its online services include the iTunes Store, the iOS App Store and Mac App Store, Apple Music, and iCloud. 

Analysis 

Apple on Monday landed a $1tn valuation after analysts at Drexel Hamilton boosted their price target on the stock. 

Apple, which was on the verge of bankruptcy in 1997 when its founder, Steve Jobs, retook the helm, would require a 15% increase in its share price to tip over the $1tn threshold. Apple’s shares increased by 47% last year. 

The stock price needs to clear $203 per share to hit the historic milestone. Shares of Apple (AAPL) were trading above $201 in late afternoon trading Wednesday, up nearly 6% to an all-time high. That lifted its market cap to about $990 billion. 

The price increase comes after the company reported strong earnings on Tuesday. Wall Street believes that it will not take long for Apple's stock price to move past the trillion-dollar threshold. The current threshold price target for Apple's stock is $210.64, according to Thomson Reuters Eikon. The most bullish Apple analyst on Wall Street, Brian White of Monness, Crespi, Hardt & Co., has a price target of $275 a share that would peg Apple at $1.35 trillion. 

The rise came after Apple reported strong demand for its most expensive iPhones, boosting quarterly revenue despite just 1% growth in shipments. The average iPhone price hit $724 (£552), well above the expected $694.The firm said its $999 iPhone X - launched last year - remained its most popular iPhone model in the quarter and had driven the higher sales price.

Revenue growth of 31% in Apple's services business, which includes the App store, Apple Music and Apple Pay, also boosted the firm's performance. 

Overall the tech giant's revenue jumped 17% year-on-year to a quarterly record of $53.3bn (£40.6bn), with every region except Japan reporting double digit growth. Profits rose to $11.5bn, up 32% compared to the same period in 2017. 

"The lesson Apple's management has learned from the iPhone X, is when you sell a smart phone for more than $1,000 you can sell fewer units and still reap the financial benefits," said analyst Thomas Forte from DA Davidson & Co. 

Apple already claims a market capitalisation of about $975bn, making it the world's most valuable company, ahead of Amazon, Google-parent Alphabet and Microsoft. 

To reach the $1tn threshold, Apple will need to see further increases to its share price - though exactly how high the price has to climb depends on how many shares Apple has. That is changing as the firm is engaged in a generous share buyback programme, which it expanded by $100bn in May. 

Counterpoint 

The company is vulnerable to trade tensions between the US and China, which have led to new tariffs and rattled global stock markets. The US is considering additional duties on $200bn in Chinese imports, which could affect Apple's operations. In recent days, state media in China have also had reports that fault Apple for not doing enough to counter spam in its messaging service. 

Apple chief executive Tim Cook told financial analysts on Tuesday that the firm is assessing the risk from the latest US tariff proposal but has not felt direct effects from the higher duties already put in place. 

Assessment 

Our assessment is that the world’s top five tech companies are collectively worth US$ 3.35tn – more than the GDP of UK and every other country put together excepting US, China-Japan and Germany. We believe that the surge in valuations in 2018 is primarily due to Donald Trump’s tax cuts and continued quantitative easing from central banks. We feel that Amazon ($870 billion); Google owner Alphabet ($850 billion) and Microsoft market cap ($815 billion) will soon cross the US$ 1 trillion mark.