Apple within touching distance of the $800bn mark

In Forrest Gump, the film's protagonist wades into the stock market and into "some kind of fruit company". "We don't have to worry about money no more," Gump says of his investment. "And I said, 'That's good! One less thing'."

The company? Apple.

On Tuesday the valuation of the iPad and MacBook maker topped $800 billion (€735.8bn) for the first time, more than the value of Walmart, General Electric, Pfizer and Kraft Heinz combined, and the first time a US publicly-traded company has hit that mark.

The company’s stock, up nearly a third so far this year, has enjoyed a meteoric rise since the iPhone began disrupting the mobile phone industry in 2007. It has returned more than 870 per cent to shareholders since then.

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While much of the gain has been propelled by the popularity of the iPhone, the more recent introduction of debt-funded share buybacks and dividends has attracted a steady stream of value investors. Warren Buffett is a new investor.

Apple has not been the only technology company setting records this year. The sector now accounts for five of the most valuable companies within the S&P 500. The list includes three of the four Fang stocks – Facebook, Amazon and Google owner Alphabet (the fourth is Netflix). Together with Microsoft they are worth nearly $3 trillion.

"You are seeing the very real effects of disruption in tech," Nicholas Colas, chief market strategist at Convergex, said of their rising share prices.

Top banana

Michael Underhill, the chief investment officer of Capital Innovations, adds: “Tech has been leading the way, and Apple has been the top banana in a crowded tech world with over $200 billion in cash, defensible market share and proprietary technology with leading platforms for innovations.”

Despite recording earnings growth of more than 10 per cent in the first quarter, Apple trades with a forward 12-month price-to-earnings ratio below that of the wider S&P 500, according to FactSet. Facebook and Alphabet both command a p/e ratio above 27. Apple, by contrast, trades at less than 16 times its earnings over the next year.

As Apple’s valuation marches higher, the sheer size of the company is raising questions for some over its ability to keep growing sales. Other large consumer groups have suffered major missteps, portfolio managers caution.

However, analysts expect that the next iPhone will recapture consumer attention and help fan growth at the company. Broker Drexel Hamilton is among the most bullish, and this week put a price target on the group that is equivalent to a $1 trillion valuation.

“Because their iPhone sales were a little bit on the poor side, there are expectations that their next product will be more breakthrough,” said JJ Kinahan, chief market strategist at TD Ameritrade. “It may start putting a little pressure on them to deliver a ‘cool’ product going forward.”

Advance

The company’s advance this year has been vital to the broader S&P 500, of which Apple represents just under 4 per cent of the index.

Without Apple and nine other stocks, which together account for roughly 15 per cent of the S&P’s market cap, the benchmark index would be little changed since the start of March. Over the past two months the vast majority of the benchmark US stock index – some 490 stocks – have had little impact on the index, according to Fundstrat Global Advisors.

Despite its record valuation, Apple's sway on the S&P 500 still falls short of the influence some companies have had in the past. IBM, which for several years held a 5 per cent or 6 per cent weighting in the index, ExxonMobil and General Electric have commanded greater influence. – Copyright The Financial Times Limited 2017