Apple’s Back at $3 Trillion – Can It Stay There?

Of all the factors that played a role in Apple’s surge, cash may be the most important. When interest rates rose from zero to more than 5%, profits suddenly mattered more than promise, and Apple collected plenty of the former. The company built a formidable war chest, amassing more than $100 billion in cash, and deployed it masterfully. In May, it announced a $90 billion share buyback, its second in two years, putting that money in its investors’ hands. Apple’s buybacks have distinguished it from many of its tech peers who’ve struggled with profitability. 

Taking Apple’s cash into consideration, portfolio manager Patrick Burton told Bloomberg the company’s valuation made sense. “In my career, I never envisioned a company of this size,” he said. “But then I never envisioned a company capable of generating more than $100 billion in free cash flow in a year.” On Thursday, Citi analyst Atif Malik set a $240 price target for Apple, anticipating another near 30% climb.

To remain at $3 trillion, Apple will need to show sales growth or keep buying back stock, but it’s demonstrated enough strength in its iPhone and services businesses that it appears likely to reverse the trend. Even as Apple’s Mac sales dropped 31% and iPads sales dropped almost 13% in the most recent quarter, its iPhone revenue rose 2%, beating expectations by nearly $2.5 billion.

Its services business, meanwhile, made up 22% of its revenue in the recent quarter, larger than every product but iPhone, insulating it a bit from the declines elsewhere. And with the iPhone 15 on the way this fall, a major upgrade cycle awaits.

When Apple first reached $3 trillion in January 2022, it was in a tenuous position. Inflation was rising and the Fed was preparing to start a campaign of significant interest rate hikes that have depressed asset prices. Meanwhile, Apple was in the thick of COVID’s omicron wave, where supply chain disruptions cost it billions. The company would take some time to figure these issues out, but its supply chain’s improved and the Fed is nearing the end of its rate raises. The near future, at the very least, looks bright. 

Today, Apple makes up more than 7% of the S&P 500, making it a safe haven of sorts for investors who’ll keep their money these regardless of quarterly performance. The market’s health now rests, in part, on Apple doing well, creating a self-reinforcing relationship that can defy investing fundamentals. That relationship can go on for a time, but it can’t last forever. And at some point, Apple’s longer term bets like the Vision Pro — and its long-anticipated car project — will have to show results. Until then, it’s a good time to be Tim Cook, and his investors.