Apple briefly became the US’s first US$900bn company on the day its stores around the world were inundated with customers trying to get their hands on the new iPhone X.
Demand for the handset, which boasts a facial recognition system, an edge-to-edge display, and a price tag starting at $999, has prompted Apple to predict record sales of at least $84bn in the Christmas quarter. The shares gained as much as 3.7% to $174.26, briefly tipping Apple’s market capitalisation above $900bn. They were up 2.1% at 9.55am in New York.
“Apple is taking the iPhone franchise to a whole new level with the iPhone X, pushing the company deep into the ultra-luxury smartphone market with the highest priced iPhone in the company’s history,” Drexel Hamilton analyst Brian White wrote in a note to clients. “We believe Apple has attractive upside over the next 12 months.”
Apple shares have climbed almost 50% this year on expectations for the iPhone X, which comes 10 years after the original iPhone was released. Even with those gains and the record valuation, Apple still trades at just 19 times earnings. That’s a discount to Google parent Alphabet, which trades at 31 times earnings, Netflix, which trades at 200 times earnings, and Amazon.com’s 277 price-to-earnings multiple.
“It’s selling at less than the market multiple,” Hank Smith, chief investment officer at Haverford Trust, which owns Apple shares, said in a Bloomberg Television interview. He said that unlike those other companies, Apple has to convince consumers to buy a new phone annually. “They have to sell millions of phones each year, so there’s always a chance those sales can come in late.”
More upside
Technology companies’ ability to build loyalty for their products and services, and consistently attract returning customers, has seen them come to dominate American equity indexes: Apple, Alphabet, Microsoft, Amazon and Facebook are the five most highly capitalised stocks in the US. It was only in May that Apple became the first American company to cross the $800bn threshold. Analysts expect Apple shares to rise by another 11% over the next 12 months.
While Apple generates about two-thirds of its sales from the iPhone, CEO Tim Cook has over the past two years prioritised growth from services, which include Apple Music and iCloud. Not only do services generate more profitable revenue, they also tie consumers more tightly to Apple’s lineup of hardware products, making it harder to trade in an iPhone or iPad for a competing device from Samsung Electronics, for instance. — (c) 2017 Bloomberg LP
