Apple Inc. is once again on the cusp of history as it inches closer to a $3 trillion market valuation. The technology giant's shares have surged by 35% this year, adding nearly $690 billion in market value, courting investors with its steady revenue streams and massive cash flows. This has made Apple one of the favourite stocks for institutional investors, hedge funds, retail investors, and Warren Buffett alike.
Institutional investors, in particular, have gravitated towards Apple and other technology behemoths this year due to a potential recession, bank failures and a US debt-ceiling standoff. Apple's stellar performance has, however, sparked an increased debate around its valuation. With its revenue projected to shrink this year, the stock is in rarefied air, trading at a premium to its own history as well as the market, with a multiple of 28 times projected earnings, as compiled by Bloomberg.
Apple briefly breached $3 trillion in early 2022 before a 27% drop, resulting in a downtrend in tech stocks amid soaring interest rates. However, it never closed above that level until now, and this time, many investors are still bullish on the stock.
The recent results from Apple underlined the bull case, with both earnings and revenue exceeding expectations, fueled by a resurgence in the iPhone and growth in the Services business. The company's commitment to shareholder returns, coupled with the firm's durable revenue streams, has also made Apple and other megacap tech stocks a favourite safety play, and with expectations that the Federal Reserve will cut interest rates soon to boost economic growth, investors are looking to them for their offensive characteristics.
While Apple's ever-increasing influence in major stock indexes means any reversal in the rally would pose a broader risk to markets, industry experts and investors continue to pour money into the stock.