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Apple’s $2 Trillion Market Valuation on Shaky Ground

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·5 min read
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(Bloomberg) -- Apple Inc.’s run as a $3 trillion stock proved fleeting. Now its grip on a $2 trillion market value is looking wobbly, too.

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After briefly surpassing $3 trillion in January, the iPhone maker has lost more than $800 billion in capitalization as tech stocks plunged. With concern growing that the Federal Reserve’s interest-rate increases could tip the US into recession, the $2 trillion milestone is looking precarious. Apple closed Tuesday at $2.15 trillion.

“In the same way that Apple benefited from the Fed-fueled bull market, it will suffer as the low interest rate and quantitative easing subsidies fade,” said David Trainer, chief executive officer at investment research firm New Constructs.

Economists predict the Fed will raise interest rates Wednesday by at least half a percentage point, with some predicting a 0.75-point increase in the wake of Friday’s stronger-than-expected inflation data. Further increases are expected this year. All of that could deepen the selloff in tech stocks, which are particularly vulnerable to higher interest rates as they weigh on the current valuation of companies’ future profits.

The FAANG cohort -- Facebook owner Meta Platforms Inc., Apple, Amazon.com Inc., Netflix Inc. and Google parent Alphabet Inc. -- were poster children of the two-year bull market, rallying at breakneck speed to scale historic valuations. That quickly evaporated this year with the group losing a combined $2.6 trillion in market value as investors fled from growth names for safer assets. Amazon is also close to falling below $1 trillion.

Analysts have grown cautious, too. Over the past three months, they’ve cut their estimates for Apple’s fiscal third-quarter earnings by 7.8%, according to data compiled by Bloomberg. Revenue projections are down about 4.2% over the same period. The stock also has the lowest share of analyst buy ratings in more than a year.

KeyBanc Capital Markets sees signs of softer US demand, citing credit card data spending. Others have raised concerns about the pace of revenue growth at the company’s App Store, with Morgan Stanley adding that this poses risks to its estimates for Apple’s Services business. According to data compiled by Bloomberg, Apple derived 18.7% of its fiscal 2021 revenue and more than 30% of gross profit from services.

Apple’s stock woes have intensified this year with a 24% slump and Saudi Aramco snatching its title as the world’s most valuable company. Setting aside the headwinds that have broadly pressured tech stocks -- rising interest rates, slowing economic growth and soaring inflation -- the tech giant is also facing supply constraints related to Covid restrictions in China. In April, it warned that it could take a $4 billion to $8 billion hit to revenues for the current quarter.

History shows that it can take years for technology stocks to climb back to the highs set in raging bull markets, assuming they ever do. Cisco Systems Inc., a star of the late 1990s tech frenzy, is still 46% below its all-time peak of March 2000.

Behemoths Risk Fall From Peak in $2 Trillion Wipeout: Tech Watch

“I would say that if an investor under-owns these names, then this is an opportunity to add to positions,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott, which has about $130 billion in assets. “However, there are always names that lead in some eras, but then it takes years for them to them to regain their record levels. Just because they will continue to grow, that doesn’t mean these names will regain their former leadership.”

Tech Chart of the Day

The stock market rout has pushed the Nasdaq 100 Index’s valuation down to 19 times earnings, the lowest level since the pandemic-induced selloffs of March 2020. The tech-heavy index’s price-earnings ratio had scaled a multiyear high of 31 times in September 2020 as stock markets rallied amid low interest rates and booming demand for tech gear because of pandemic lockdowns.

Top Tech Stories

  • Qualcomm Inc. won its bid to topple a 997 million-euro ($1 billion) European Union antitrust fine for allegedly pressuring Apple Inc. to only buy its 4G chips, after judges said regulators made a series of blunders in their case.

  • Walt Disney Co. could lose as many as 20 million of its Disney+ subscribers after being outbid this week for the streaming rights to Indian Premier League cricket matches.

  • SoftBank Group Corp. is considering listing some of its stake in chip designer Arm Ltd. on the London Stock Exchange, switching from an earlier plan to only use the US market, according to people familiar with the matter.

  • Microsoft Corp. is finally retiring its Internet Explorer on Wednesday, putting an end to a quarter-century-old app while also sparking a small panic among businesses and government agencies that built internal systems around the unpopular browser.

  • India will auction 5G airwaves by the end of July when three private-sector operators -- Reliance Jio Infocomm Ltd., Bharti Airtel Ltd. and Vodafone Idea Ltd. -- are expected to compete as they gear up to roll out ultra-speedy networks.

  • Billionaire Bill Gates, speaking at a climate conference, dismissed cryptocurrency projects such as nonfungible tokens as shams “based on the greater-fool theory,” reviving past criticisms of digital assets.

  • Apple has secured the long-term rights to stream Major League Soccer, taking another step in its growing ambitions as a sports broadcaster.

  • India’s UpGrad Education Pvt almost doubled its valuation to $2.25 billion in a funding round that included billionaire James Murdoch’s Lupa Systems LLC and US testing and assessment provider Educational Testing Service, according to a person familiar with the deal.

(Updates stock move in paragraph 8.)

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