Apple? $1 Trillion? Really?
Apr 4, 2012 9:15 AM PT
Is Apple on the fast track to become the first trillion-dollar company in world history?
Just a few short weeks ago, that prospect appeared to be the exclusive fantasy of wild-eyed Apple fanboys posing as stock analysts, but now the idea appears to be gaining street cred.
Analysts are looking at better-than-predicted sales of the new iPad and iPhone models, growth of overseas markets and potential sales of MacBook and iPhone refreshes down the road. A US$1,000-per-share price point for Apple stock has started looking like a viable target, if not for this year, then in the near future.
The latest analyst to join the $1,000 fold is Brian White of Topeka Capital Markets. In a recent research note, he predicted Apple shares would hit the $1,000 mark in 12 months, which would give it a market cap of $1 trillion dollars, a first for any company ever.
His estimate was based on Apple's expanding portfolio of innovative products, its growing integrated digital grid, its unmatched aesthetics and a brand that is able to touch the soul of consumers of all backgrounds, White wrote.
Apple fever is spreading like wildfire around the world, he noted, and he sees no end in sight to this trend.
Market Cap Constraints
On Tuesday, another Apple watcher, Gene Munster of Piper Jaffray, joined the $1,000 club, but he predicted Apple wouldn't reach the magic number until 2014. His 12-month estimate for the stock was $910 a share.
"While our 12-month price target is $910, we believe shares of AAPL can reach $1,000 beyond our one-year price target window, specifically in 2014 when we believe investors will begin to factor in [calendar year 2015] numbers," he wrote in a research note.
To reach a market cap of $1 trillion, Apple will need to find another US$400 billion in capital investment. That's a daunting obstacle and one that some analysts believe Apple won't be able to overcome as it approaches the $1,000-per-share mark.
$400B From Growth, Competitors
But Munster believes Apple can get that kind of additional capital by latching onto new dollars entering the tech sector through growth and poaching capital from competitors.
Over the next three years (2012-2014), he predicted that about $390 billion will be invested in tech companies. Apple should be able to snatch at least half that money, especially since in the previous four years, 85 percent of market cap money flowing into the tech sector went to Apple.
The other $200 billion needed to reach $1 trillion mark would come from investors moving money from Apple's top 10 competitors, which currently have a market cap of $1 trillion.
At a $1,000 share price, Apple would command 26 percent of the total U.S. tech market cap, compared to 17 percent today, Munster wrote.
No Bubble Trouble
Nevertheless, some analysts remain skeptical about Apple's growth potential. They see competition heating on all fronts -- smartphones, tablets, notebooks and the connected home.
"They're concerned about Apple's ability to continue outpacing the competition and keeping its market share at the profit levels it has in the past," The PowerTrend Investor Chris Versace
For investors, rapid rises in a tech stock's price triggers a yellow flag. That's because many of them have been popped by past high-tech bubbles.
"Bubbles occur when valuations get very frothy," Versace explained. "When we look at Apple's P/E multiples, that's not the case."
P/E, or price to earnings ratio, is popular metric used by financial analysts to determine a stock's true worth.
Cult Stock Perils
While exuberance for a stock can rapidly boost its price, it can also punish a stock disproportionately, too.
"The risk to a cult-like stock is that expectations become so overwhelming that even if the company delivers what they expect, it won't meet the 'whisper' numbers of Wall Street," Versace explained.
"In that case, there would be downward pressure on any stock in that situation," he added.
For AAPL to hit $1,000, everything would have to go "beyond perfectly" for Apple, observed Rocco Pendola, author of the Pendola Stock Option Newsletter.
"One misstep and this thing is going to get pounded down," he told MacNewsWorld.