
Ask HN: Is Apple market cap rise justifiable? - NiceWayToDoIT
I am trying to understand from $1T market cap of Apple jumped to $2.29T during last 6 months of pandemic.<p>Apple revenue is $260bn and net income ~$55bn, in third quarter of 2020 they had revenue increase of 11% from the year-ago quarter.<p>What is justification of additional 1,29 trillion (1,290,000,000,000 USD) in 6 months?<p>Entire world economy is just $86 trillion?!
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handmodel
First off, the 86T figure is the yearly GDP of the world whereas the 2T figure
for Apple is the value they are worth to shareholders in perpetuity. Not
directly comparable.

I would say the rise itself isn't logical but that doesn't mean it is
overvalued now - perhaps it was undervalued before. The P/E ratio is 40. That
is high but not crazy high if you think they can expand their profits from
services and continue to expand to new countries like India. Additionally,
they have so much cash and a business moat that even if things don't go well
it is unlikely the value of the company could drop too far.

I will continue to hold my stock for now.

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shoo
> First off, the 86T figure is the yearly GDP of the world whereas the 2T
> figure for Apple is the value they are worth to shareholders in perpetuity.
> Not directly comparable.

This is a good point, the market price for the shares corresponds to
cumulative flows of expected net profits accrued over many future years. To
add more detail, when I do a crude discounted cash flow valuation of AAPL
assuming very optimistic revenue growth (+15%) in the short term that decays
to 2% growth after 5 years or so, & using a discount rate of 6%, that backs
out a value per share estimate of around $134 , with the majority of that
valuation -- $76 out of $134 -- being contributed from net profits that occur
after a 15 year time horizon. The current market price for each share
incorporates the assumption that AAPL will continue to be a profitable
business for decades, maintaining comparable profit margins, with at least
some degree of revenue growth that outperforms economic growth in the short
run.

If we assume AAPL is afflicted by some weird calamity that causes it to have
exactly 0 net profit over the next 12 months but then otherwise bounce back to
its usual profitability, that should only reduce the valuation of each share
by about $4 -- a 3% drop in share price .

Similar kinds of reasoning can be used to estimate how much the valuation of
shares should drop due to COVID-induced short term loss in revenue &
profitability -- e.g. it might roughly be something like a single-digit
percentage drop in value -- say 6% ish -- (industry and company specific, some
sectors such as hospitality and travel suffer more impact, and companies with
heavy financial or operational leverage may have much higher short term losses
in response to the same drop in revenue, perhaps going bankrupt). Compare to
the 33% drop in market prices in march earlier this year.

My discounted cash flow valuation for AAPL assuming a pessimistic revenue
growth scenario is around $70 / share -- so I value each AAPL share somewhere
in the range of $70 -- $134 & won't be buying any while the market price sits
at the high end of that range.

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nabla9
Look at their p/e and compare it to alternative investments. Over- and
undervaluation depends on the return investors expect.

Investors are increasingly happy with smaller ROI and Apple is good relative
to alternatives. Money is moving from bad companies to good companies,
decreasing the ROI from good companies.

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muzani
I think this nails it. People are going with less risky investments and Apple
just fits that.

It could also be that they have less faith in their financial system - not
just US, but consider places like the middle east or Japan too. The good
stores of wealth are gold, bitcoin, and some blue chip stocks.

~~~
nabla9
If there is a bubble, it's caused by high corporate debt not affecting stock
valuations.

(Nonfinancial corporate liability level) / (GDP)
[https://fred.stlouisfed.org/graph/?g=jmxY](https://fred.stlouisfed.org/graph/?g=jmxY)
If corporate debt bubble bursts, valuation of junk-bond behemoths like
SoftBank, Netflix, Tesla is going to drop dramatically because their financing
becomes expensive. Companies like Marriott Inc. are going to be buried.

Meanwhile Apple, Berkshire, Microsoft, are going to be fine.

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cblconfederate
Big tech market caps are a gambling game these months. There is an influx of
foreign investors to the US who are gambling on tech stocks. Has nothing to do
with their revenues, but it's a good rationalization. Investors would be
foolish not to join the Fed-propped US stock rally. But they also have no
loyalty to the companies so, when it will pop is anybody's guess.

[https://www.investopedia.com/the-biggest-u-s-stock-buyer-
in-...](https://www.investopedia.com/the-biggest-u-s-stock-buyer-in-q1-was-
foreign-investors-5069449)

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samfisher83
[http://financials.morningstar.com/valuation/price-
ratio.html...](http://financials.morningstar.com/valuation/price-
ratio.html?t=aapl)

Their price/sales and price/earning have just jumped like crazy. Their peak
year in term of phone sales was 2015.

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hindsightbias
It’s one of those rare companies that actually makes real money.

What other stocks that arent monopolies are worth investing in? There are
trillions in cash sloshing around and for every anecdote there are a thousand
other stocks that are crap.

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swiley
Yes.

Apple ultimately controls all of the apps on your phone. They control when
people get dates, when they get jobs, if/when they can spend money, many
people won’t even go to the bathroom without their phone.

Is it right? No. But it’s the way it is.

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cblconfederate
apple is ~50% on the US and 25% in europe. Hardly controlling

