Apple becomes first company to hit $3 trillion mcap; what’s behind the rally?

Apple touched $3 trillion mark

Apple is now worth $3 trillion. It became the first publicly traded company to ever reach the figure on Monday, when its stock briefly eclipsed $182.86 a share before closing at $182.01.

Apple’s value is even more remarkable considering how rapid its recent ascent has been. 

  • The first trillion dollars in market cap was achieved in 42 years
  • The second trillion was added in 2 years. 
  • The third trillion was added in just 16 months and 15 days. 

To put Apple’s size into perspective, Apple now accounts for nearly 7 percent of the total value of the S&P 500, breaking IBM’s record of 6.4 percent in 1984.

But why has Apple stock been the darling for everyone from retail investors to investing titans like Warren Buffet? 

Here are some reasons:

Stock buybacks: Apple’s immense sales and wide profit margins have provided it with a stockpile of cash big enough to buy a company like UPS, Starbucks or Morgan Stanley outright. At the end of September, Apple reported $190 billion in cash and investments. However,  instead of making a major acquisition, or even trying something ambitious and expensive like building multiple factories in the United States, Apple has decided to largely give its cash back to its investors by buying its own stock.

Over the past decade, Apple has purchased $488 billion of its own shares, by far the most of any company. Much of that spending came after Apple used a 2017 tax law to move most of the $252 billion it had held abroad back to the United States. Apple is now responsible for 14 of the 15 largest stock buybacks in any single financial quarter. 

Diversification of product portfolio: Apple’s success from the iPhone meant that a big chunk of their revenue came from the smartphone alone. This was a big risk and Apple recognised it. Their Intel powered Mac lineup had been dull and underperforming for the price for several years but when it unveiled its own chips inside the Macbook, it was a big hit. Considering work from home, sales from Macs soared to record highs. 

Not only this, Apple is also focused on services as a segment and has been bringing new developments every year in this segment. It launched a combined plan (iCloud+, Apple TV+, Apple Music, Apple Arcade) for users last year. Services business grew 25.6% year-over-year and delivered more than $18 billion in revenue during the quarter.

Future plans: Apple's augmented or virtual reality headset has yet to make an appearance in 2022. As Facebook's renaming to Meta has sparked a whole new wave of metaverse hype, Apple's headset could be sliding in just when the territory is heating up.

Apple could be blending AR and VR with two headsets in the near future, but leading the way with some sort of high-end AR/VR headset, according to a report back in January by Bloomberg's Mark Gurman. More recent reports from Gurman suggest a focus on gaming, media and communication.

Apple stock price outlook

Brokerages believe that Apple’s strong R&D and product portfolio will keep it relevant in many future generations to come.

Morgan Stanley's Katy Huberty raised the firm's price target on Apple from $164 to $200, and maintained the equivalent of a buy rating, arguing that new products like virtual reality and augmented reality headsets aren't yet reflected in the share price.

Bernstein analyst Toni Sacconaghi said in a note to investors earlier this month that he expects Apple to continue repurchasing shares over the next five years. “Our analysis suggests that Apple is likely to be able to continue repurchasing ~ 3-4% of its shares per year until the end of 2026 while growing its dividend per share by 10% annually without taking on net debt on its balance sheet,” Sacconaghi said in a Nov. 17 note to investors.