Apple reaches $2trn: Has the tech rally gone too far, too fast?
Reaction to latest milestone
Yesterday's news that Apple's market cap has reached the $2trn mark has confirmed the ongoing "primacy" of the high-growth tech rally, according to industry commentators, although the future outlook for the sector is "less clear" due to regulatory concerns, US-China trade tensions and soaring valuations.
On Wednesday (19 August), the iPhone maker's price per share reached $468 during early Wall Street trading, marking a 60% increase in the value of its shares year to date.
It was almost exactly two years ago that Apple's market cap surpassed $1trn. At time of writing, Apple accounts for 4.9% of the S&P 500 index, while the FAANG companies (Facebook, Apple, Amazon, Netflix and Google) comprise about 18% of the index overall.
'Significant tailwinds' can sustain FAANG outperformance despite growing regulation risk
Chris Beauchamp, chief market analyst at IG, said Apple's push to a $2trn market cap will "delight fans of round numbers" and "confirm the primacy of big tech in this market rally", but will also provide confirmation to bearish investors that the rally has "gone too far too fast" and is "in desperate need of a pullback".
"However, there is plenty of money around, as shown by the high demand for Germany's 30-year bond auction," he pointed out. "Some of that will continue to find its way into such high momentum plays as Apple and other tech stocks."
Randeep Somel, associate fund manager (equities) at M&G Investments, said Apple's new milestone reflects consumers' increased focus and reliance on technology since the outbreak of the pandemic, but warned the future for mega-cap tech stocks is "less clear".
"Most notably, the increasing size and influence of these companies has brought with it greater scrutiny from regulators. The ability of technology companies, all of whom are sitting on vast cash reserves, to buy out new/challenger technology companies going forward will not be as easy as it has been in the past," he warned.
Legg Mason's Osmani shuns FAANGs to outperform US market
Somel said the fact tech stocks are falling under greater scrutiny of the regulators could be seen during the US congressional hearings on antitrust in July this year, where FAANG CEOs faced questions on the power of their companies in terms of pricing power, data usage and treatment of smaller competitors.
"Technology platforms are very strong, but they have buttressed their positions by acquiring smaller competitors, such as Facebook's acquisition of Instagram and Whatsapp," he continued.
"If there is greater scrutiny of large-cap tech acquiring smaller companies going forward, it will allow smaller companies to challenge and provide greater competition."
Richard Hunter, head of markets at interactive investor, said he has seen an uptick in customers who "believe more value can be squeezed from the fruit" since the beginning of the year, despite increasing regulatory concerns.
"The burning question now for investors is how high can Apple go? A deep recession could spoil Apple's bull run by knocking demand for its premium products like iPhones, iPads and MacBooks," he pointed out. "However, Apple has a few strings to its bow and its services arm, which includes Apple Music and Apple TV, is likely to continue to be a revenue driver for the business regardless of whether the overall economy is growing or not.
"In addition, the US-China trade conflict remains a threat. Further escalation in the conflict could leave Apple, who are heavily reliant on Chinese manufacturing for products such as smartphones, exposed."
More on US
Most read
