On Aug 19, Apple, Inc. AAPL became the first publicly traded U.S. company to reach the $2 trillion market cap, as widely anticipated. Shares of Apple closed the session at $462.83, with a 0.1% uptick. The iPhone maker’s market cap dropped slightly to $1.98 trillion at the end of the day.
Apple’s shares have been rallying since it reported third-quarter fiscal 2020 earnings on Jul 30. The company came up with revenues of $59.7 billion despite feeling the heat of the coronavirus pandemic. Revenues were once again driven by robust sales of iPhone, Mac and iPad. However, it now needs to be seen if Apple can continue its dream run.
Apple Reaches New High
On Wednesday, the iPhone maker’s share price hit $466.77 around 11 A.M. ET. Beating out Saudi Aramco, Microsoft Corporation MSFT, Alphabet, Inc. GOOGL and Amazon.com, Inc AMZN, Apple became the most-valuable, publicly traded company in the world. Apple reached the $2 trillion mark almost two years after it became the first company to achieve $1 trillion in market cap.
Shares of Apple have been on a tear for years. However, they’ve performed particularly well in 2020, gaining more than 50%, despite the impact of the COVID-19 pandemic on its sales and revenues. The stock has gained 3.5% every week, on average, since the beginning of June and is rallying ever since impressive fiscal third-quarter results were announced by the company. In fact, this was Apple’s best-ever third quarter. Apple has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
What Lies Ahead?
The scene has changed drastically from Apple’s acceleration from the $1 trillion club to the $2 trillion mark. Notably, the race to $1 trillion in 2018 was primarily confined to tech giants. The competition had heated up and after Apple hit the mark on Aug 2, 2018, Amazon came a close second just two weeks later.
This time, however, Apple has taken a massive lead, with both Amazon and Microsoft’s market value just above $1.6 trillion, while Alphabet still hovering around $1 trillion. That said, the scene has also changed in the past couple of years. Two years ago, Apple’s revenues were driven by robust sales of iPhone, although it had already started slowing.
Today, iPhone sales are slowing further but Apple CEO Tim Cook has made an intelligent shift to the Services section. Apple first started to refocus investor attention on its services business back in 2015, when iPhone growth first showed signs of slowing. Services, including Internet Services, App Store, Apple Play, Apple Music and AppleCare, and licensing and other services have been driving the company’s revenues for the past couple of years.
In fact, investors have started seeing Apple’s business less like the other hardware makers and more like a software company. Apple needs to hold on to these services for sustained growth. Moreover, in the past two years, Apple has diversified its portfolio. Revenues from Apple Pay has been working miracles for the company, which further got a boost owing to the pandemic as more people shifted to contactless payment during this time.
Also, in the same timeframe, Apple started to launch new subscription services, such as Apple News+ and Apple TV+, which is a competitor to Netflix, Inc, NFLX and The Walt Disney Company’s DIS Disney+. Last year, Apple also introduced Apple Card in partnership with Goldman Sachs. Apple Card is a credit card integrated into the iPhone software.
Apple declined to provide earnings guidance for this quarter due to continued uncertainty from the COVID-19 pandemic. However, the company is likely to introduce a host of products and services over the next few months. Among these, would be a new lineup of iPhone 12 devices in early fall, including one with a 5.4-inch display. Other products expected to release this or early next year include premium Apple-branded headphones, a redesigned iMac, the first Macs running Apple’s own silicon, a Tile-like tracking device, and more.
There are other factors behind Apple’s rise. Tech stocks are in general doing well and have been largely responsible for the market’s bull run. Apple is also a big purchaser of its own stock, authorizing a $50 billion increase to its share repurchase program in 2020, following top-offs of $75 billion in 2019 and $100 billion in 2018. That said, Apple’s recent achievement would not have been possible if investors had not undertaken a major re-appraisal of the company’s business model.
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