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Ask HN: Is Apple market cap rise justifiable?

I am trying to understand from $1T market cap of Apple jumped to $2.29T during last 6 months of pandemic. Apple revenue is $260bn and net income ~$55bn, in third quarter of 2020 they had revenue increase of 11% from the year-ago quarter. What is justification of additional 1,29 trillion (1,290,000,000,000 USD) in 6 months? Entire world economy is just $86 trillion?!

handmodel 6y ago
First off, the 86T figure is the yearly GDP of the world whereas the 2T figure for Apple is the value they are worth to shareholders in perpetuity. Not directly comparable. I would say the rise itself isn't logical but that doesn't mean it is overvalued now - perhaps it was undervalued before. The P/E ratio is 40. That is high but not crazy high if you think they can expand their profits from services and continue to expand to new countries like India. Additionally, they have so much cash and a business moat that even if things don't go well it is unlikely the value of the company could drop too far. I will continue to hold my stock for now.
- shoo 6y ago
  > First off, the 86T figure is the yearly GDP of the world whereas the 2T figure for Apple is the value they are worth to shareholders in perpetuity. Not directly comparable. This is a good point, the market price for the shares corresponds to cumulative flows of expected net profits accrued over many future years. To add more detail, when I do a crude discounted cash flow valuation of AAPL assuming very optimistic revenue growth (+15%) in the short term that decays to 2% growth after 5 years or so, & using a discount rate of 6%, that backs out a value per share estimate of around $134 , with the majority of that valuation -- $76 out of $134 -- being contributed from net profits that occur after a 15 year time horizon. The current market price for each share incorporates the assumption that AAPL will continue to be a profitable business for decades, maintaining comparable profit margins, with at least some degree of revenue growth that outperforms economic growth in the short run. If we assume AAPL is afflicted by some weird calamity that causes it to have exactly 0 net profit over the next 12 months but then otherwise bounce back to its usual profitability, that should only reduce the valuation of each share by about $4 -- a 3% drop in share price . Similar kinds of reasoning can be used to estimate how much the valuation of shares should drop due to COVID-induced short term loss in revenue & profitability -- e.g. it might roughly be something like a single-digit percentage drop in value -- say 6% ish -- (industry and company specific, some sectors such as hospitality and travel suffer more impact, and companies with heavy financial or operational leverage may have much higher short term losses in response to the same drop in revenue, perhaps going bankrupt). Compare to the 33% drop in market prices in march earlier this year. My discounted cash flow valuation for AAPL assuming a pessimistic revenue growth scenario is around $70 / share -- so I value each AAPL share somewhere in the range of $70 -- $134 & won't be buying any while the market price sits at the high end of that range.
hindsightbias 6y ago
It’s one of those rare companies that actually makes real money. What other stocks that arent monopolies are worth investing in? There are trillions in cash sloshing around and for every anecdote there are a thousand other stocks that are crap.
nabla9 6y ago
Look at their p/e and compare it to alternative investments. Over- and undervaluation depends on the return investors expect. Investors are increasingly happy with smaller ROI and Apple is good relative to alternatives. Money is moving from bad companies to good companies, decreasing the ROI from good companies.
- muzani 6y ago
  I think this nails it. People are going with less risky investments and Apple just fits that. It could also be that they have less faith in their financial system - not just US, but consider places like the middle east or Japan too. The good stores of wealth are gold, bitcoin, and some blue chip stocks.
  - nabla9 6y ago
    If there is a bubble, it's caused by high corporate debt not affecting stock valuations. (Nonfinancial corporate liability level) / (GDP) https://fred.stlouisfed.org/graph/?g=jmxY https://fred.stlouisfed.org/graph/?g=jmxY If corporate debt bubble bursts, valuation of junk-bond behemoths like SoftBank, Netflix, Tesla is going to drop dramatically because their financing becomes expensive. Companies like Marriott Inc. are going to be buried. Meanwhile Apple, Berkshire, Microsoft, are going to be fine.
samfisher83 6y ago
http://financials.morningstar.com/valuation/price-ratio.html?t=aapl http://financials.morningstar.com/valuation/price-ratio.html... Their price/sales and price/earning have just jumped like crazy. Their peak year in term of phone sales was 2015.
swiley 6y ago
Yes. Apple ultimately controls all of the apps on your phone. They control when people get dates, when they get jobs, if/when they can spend money, many people won’t even go to the bathroom without their phone. Is it right? No. But it’s the way it is.
- cblconfederate 6y ago
  apple is ~50% on the US and 25% in europe. Hardly controlling
cblconfederate 6y ago
Big tech market caps are a gambling game these months. There is an influx of foreign investors to the US who are gambling on tech stocks. Has nothing to do with their revenues, but it's a good rationalization. Investors would be foolish not to join the Fed-propped US stock rally. But they also have no loyalty to the companies so, when it will pop is anybody's guess. https://www.investopedia.com/the-biggest-u-s-stock-buyer-in-q1-was-foreign-investors-5069449 https://www.investopedia.com/the-biggest-u-s-stock-buyer-in-...

handmodel 6y ago

First off, the 86T figure is the yearly GDP of the world whereas the 2T figure for Apple is the value they are worth to shareholders in perpetuity. Not directly comparable. I would say the rise itself isn't logical but that doesn't mean it is overvalued now - perhaps it was undervalued before. The P/E ratio is 40. That is high but not crazy high if you think they can expand their profits from services and continue to expand to new countries like India. Additionally, they have so much cash and a business moat that even if things don't go well it is unlikely the value of the company could drop too far. I will continue to hold my stock for now.

shoo 6y ago
> First off, the 86T figure is the yearly GDP of the world whereas the 2T figure for Apple is the value they are worth to shareholders in perpetuity. Not directly comparable. This is a good point, the market price for the shares corresponds to cumulative flows of expected net profits accrued over many future years. To add more detail, when I do a crude discounted cash flow valuation of AAPL assuming very optimistic revenue growth (+15%) in the short term that decays to 2% growth after 5 years or so, & using a discount rate of 6%, that backs out a value per share estimate of around $134 , with the majority of that valuation -- $76 out of $134 -- being contributed from net profits that occur after a 15 year time horizon. The current market price for each share incorporates the assumption that AAPL will continue to be a profitable business for decades, maintaining comparable profit margins, with at least some degree of revenue growth that outperforms economic growth in the short run. If we assume AAPL is afflicted by some weird calamity that causes it to have exactly 0 net profit over the next 12 months but then otherwise bounce back to its usual profitability, that should only reduce the valuation of each share by about $4 -- a 3% drop in share price . Similar kinds of reasoning can be used to estimate how much the valuation of shares should drop due to COVID-induced short term loss in revenue & profitability -- e.g. it might roughly be something like a single-digit percentage drop in value -- say 6% ish -- (industry and company specific, some sectors such as hospitality and travel suffer more impact, and companies with heavy financial or operational leverage may have much higher short term losses in response to the same drop in revenue, perhaps going bankrupt). Compare to the 33% drop in market prices in march earlier this year. My discounted cash flow valuation for AAPL assuming a pessimistic revenue growth scenario is around $70 / share -- so I value each AAPL share somewhere in the range of $70 -- $134 & won't be buying any while the market price sits at the high end of that range.

hindsightbias 6y ago

It’s one of those rare companies that actually makes real money. What other stocks that arent monopolies are worth investing in? There are trillions in cash sloshing around and for every anecdote there are a thousand other stocks that are crap.

nabla9 6y ago

Look at their p/e and compare it to alternative investments. Over- and undervaluation depends on the return investors expect. Investors are increasingly happy with smaller ROI and Apple is good relative to alternatives. Money is moving from bad companies to good companies, decreasing the ROI from good companies.

muzani 6y ago
I think this nails it. People are going with less risky investments and Apple just fits that. It could also be that they have less faith in their financial system - not just US, but consider places like the middle east or Japan too. The good stores of wealth are gold, bitcoin, and some blue chip stocks.
- nabla9 6y ago
  If there is a bubble, it's caused by high corporate debt not affecting stock valuations. (Nonfinancial corporate liability level) / (GDP) https://fred.stlouisfed.org/graph/?g=jmxY https://fred.stlouisfed.org/graph/?g=jmxY If corporate debt bubble bursts, valuation of junk-bond behemoths like SoftBank, Netflix, Tesla is going to drop dramatically because their financing becomes expensive. Companies like Marriott Inc. are going to be buried. Meanwhile Apple, Berkshire, Microsoft, are going to be fine.

samfisher83 6y ago

http://financials.morningstar.com/valuation/price-ratio.html?t=aapl http://financials.morningstar.com/valuation/price-ratio.html... Their price/sales and price/earning have just jumped like crazy. Their peak year in term of phone sales was 2015.

swiley 6y ago

Yes. Apple ultimately controls all of the apps on your phone. They control when people get dates, when they get jobs, if/when they can spend money, many people won’t even go to the bathroom without their phone. Is it right? No. But it’s the way it is.

cblconfederate 6y ago
apple is ~50% on the US and 25% in europe. Hardly controlling

cblconfederate 6y ago

Big tech market caps are a gambling game these months. There is an influx of foreign investors to the US who are gambling on tech stocks. Has nothing to do with their revenues, but it's a good rationalization. Investors would be foolish not to join the Fed-propped US stock rally. But they also have no loyalty to the companies so, when it will pop is anybody's guess. https://www.investopedia.com/the-biggest-u-s-stock-buyer-in-q1-was-foreign-investors-5069449 https://www.investopedia.com/the-biggest-u-s-stock-buyer-in-...