Apple Close to 3 Trillion USD Market Capitalization

Apple Inc, the iPhone, Mac, iPad and App Store services producer, is close to attaining slightly above 3 trillion USD  market capitalisation.

This amounts to Price/Sales ratio of 8.27 and Price/Earnings ratio of 31.99.

In short, I believe the intrinsic value of Apple Inc is around 1.7 trillion USD. Revenue is growing strongly with 34 % approximately year on year on average for each of the last four quarters. But still the main revenue and profit engine of Apple are iPhone and other hardware sales. iPhones are simply Apple's moat via which the company extracts extra revenue and higher profit margins through its App Store and iPod services offering.

I really doubt that Apple will be able to grow mostly revenue, but also profits by more than 20 % on average in the next 5 to 7 years. Yes, as the world's population gets wealthier, global consumers will move up higher along the smartphones and computers value chain and demand more in numbers and more expensive iPhones, Macs and iPads.

However, I doubt the coronavirus crisis will end soon. And the current coronavirus health crisis just saps the living standards of most people around the world. What is more, energy inflation and overall consumer price growth is close to galloping which would create huge problems and possibly lead to social unrest globally. And social unrest is hardly conductive to buying luxury goods like iPhone

Warren Buffett holds more than 40 % of its more than 200 billion USD investment portfolio in Apple shares. But with a Price/Book ratio of 46.67 and a Price/Sales ratio of 8.27 Apple hardly looks like the proverbial value stocks Buffett has historically invested predominantly in. Yes, Warren Buffett invests also in GARP or Growth at Reasonable Price companies like Coca Cola. But Coca Cola's Price/Book and Price/Earnings ratios were never so high as Apple's.

Yes, Apple tries to develop its services offering portfolio. But people generally dislike subscription businesses, be it for psychological or pure financial reasons. Large part of Apple's services revenue comes from gamers playing games on the App Store. And the gaming market is not infinitely large.

I personally use an iPhone and a Mac and I must say both the iPhone and the Mac are excellent, extraordinarily good products. But currently Mr Market, as Benjamin Graham calls the stock market, prices in just too much growth into Apple's market capitalisation.

Success begets success. Apple's stock price run higher after the iPhone introduction attracted many new investors into Apple's stock and Apple's stock price just keeps rising. Apples' sheer market capitalisation size and inclusion into main stock market indices has attracted many institutional investors which attract ever new institutions who want to be a part of Apple's stock price rise.

And thus overvaluation occurs.

According to my estimates, Apple in the next 5 to 7 years is really worth 1.7 trillion USD. Apple's market capitalisation could go to 5 trillion USD in the next 7 years, but that does increase the risk that Apple turns into a giant stock bubble which will eventually cause a huge amount of wealth losses when it bursts.