Issue of the week: Is Apple’s stock a bubble?

last updated 8 January 2015

Apple continues to defy gravity, said The Economist. Since overtaking ExxonMobil as the world’s biggest company in January, the tech giant has gone stratospheric: It’s now valued at an astonishing $570 billion, compared with Exxon’s $400 billion. That’s like adding a Procter & Gamble or a Wells Fargo in value—in just three months. Apple’s share price has topped $600, having risen 75 percent in the past year and more than 50 percent in 2012 alone. The company has single-handedly delivered more than 10 percent of the S&P 500’s gains this year, leading many investors to decide they “can’t afford not to have Apple in their portfolio.” But as the stock climbs ever higher, there are worries it’s headed into bubble territory. Can Apple’s incredible run possibly continue?

To “infinity and beyond,” if you ask most of Wall Street, said Paul R. La Monica in CNNMoney.com. If anything, Apple’s stock price still looks vaguely reasonable, given that its earnings—a record $46 billion in revenue in the last quarter of 2011 alone, before the latest iPad’s blistering debut—continue to shatter expectations. Far from some “hype-fueled stock,” Apple is soaring because it is “producing real tangible products that people want to buy.” It could “easily become” a $1.5 trillion company by 2015, said Eric Jackson in Forbes.com. The iPhone still has plenty of new markets to conquer, iPad sales growth is practically vertical, and a rumored iTV could completely remake the home-entertainment market. Imagine if the company boldly pushes into new areas, like mobile payments. This is no bubble—it’s only the beginning.

“Momentum works in both directions,” said Andy Kessler in The Wall Street Journal. Just ask Kodak or General Motors. It’s only going to get harder for Apple to maintain its eye-popping sales growth, and with expectations so high, even a relatively minor challenge, such as higher wages in China or losing a patent lawsuit, could cause a stock tumble. The truth is that history is not on Apple’s side, said Rick Newman in USNews.com. It’s only the sixth company ever to be worth more than $500 billion, and none of the earlier giants—Cisco, Intel, GE, Microsoft, and Exxon—stayed that valuable for long. True, Apple has made a habit of defying expectations. But “the seeds of decline are often planted when big companies attain unmatched market power.”