Business / Tech

Apple and Amazon lead the race toward $1 trillion market value

AFP-JIJI, Bloomberg

For a long time, Apple appeared to be flying solo to a $1 trillion market value. But Amazon is right at its heels — and experts have no fears of a tech bubble.

Apple, at $939 billion, remains the highest-valued private company on the global markets, and could well cross the $1 trillion line when it releases its quarterly results Tuesday.

But the online commerce giant is right behind. Its market capitalization reached $917 billion on Friday before finishing the day at $882 billion, thanks to quarterly figures well received by investors.

Google’s parent company, Alphabet, worth $886 billion, and Microsoft ($827 billion) are also on track.

Facebook, now at $505 billion, is out of the race, having shed $119 billion in value after its results were released Thursday.

The biggest traditional economic players — billionaire Warren Buffet’s holding company, Berkshire-Hathaway ($492 billion), and bank JPMorgan Chase ($395 billion) — have been relegated to mere spectators.

The state oil company PetroChina briefly broke the $1 trillion barrier in 2007 during its initial public offering but has since dropped back down.

According to TDAmeritrade’s midyear review, Amazon’s stock was the most popular buy in the first half of 2018, with Apple the second-most-popular sell.

“The retail trader who is buying that stock is also the same person who is probably an Amazon client,” said JJ Kinahan, a chief market strategist for TDAmeritrade. “They see a stock that has plenty of upside and benefiting from the money people have to spend with the economy and the job market improving.”

But Apple, which unveils record high after record high in its quarterly results, has maintained its lead.

A Gorilla Trades strategist, Ken Berman, is convinced that Apple will reach the $1 trillion mark in its Tuesday results, thanks to its range of iPhones, growing interest in the iPad and strength in its services.

Nate Thooft of Manulife Asset Management said: “I don’t think Apple stock is that expensive. The tech sector is the safe haven of the equity market right now.”

Analysts insist the situation is a far cry from that in the late 1990s, when many startups rose fast on Wall Street — only for the “dot-com” bubble to burst.

“The big problem with the internet bubble was that the majority of businesses did not have revenues, did not have profits — many (investors) just responded to a fashion phenomenon,” said Gregori Volokhine of Meeschaert Financial Services.

“That’s not the case with all these companies that today have an essential place in people’s lives,” Volokhine said.

Edward Jones investment strategist Kate Warne said: “Most of the leading tech companies in the late 1990s were trading at 100 times earnings — very different than today.”

Apple’s price-earnings ratio stands at 18.62, underperforming the S&P 500 (20.86), the index representing the 500 biggest businesses on Wall Street.

Yet some analysts say that for the software and internet titans that have shouldered the bull market for nine years, the strain of expectations is showing — and at a time when investors suddenly have other places to put their money.

“It’s really the first chink in the hot-sector armor in a long time,” said Brad Cohen, chief equity strategist at North Star Investment Management in Chicago, where he helps oversee $1.3 billion. “We’re perhaps reaching an inflection point, and the question becomes how big can these companies grow.”

Intel Corp. topped all the forecasts for its quarterly results but still had $20 billion wiped from its value. A few days earlier Netflix plunged even though its net income sextupled. Amazon barely held on to its gains Friday.

Merely beating forecasts isn’t enough. All but one of the 36 tech firms that have reported results exceeded analyst estimates, yet over the next five days their stocks were down an average 3.5 percent.

Investors are demanding more of an industry entering a more mature phrase, with new responsibilities and expectations. Social media firms have seen the most upheaval as the world wakes up to their power to influence elections, spread misinformation and collect personal data on a massive scale.

For other companies, maturity creates different challenges. Netflix is no longer an upstart streaming service. It is a Hollywood giant, and investors expect the company to execute each quarter. Google has had more time to adjust to middle age and has so far managed to keep revenue and earnings growth humming.

Yet even in case of economic crisis, the technology sector is in a good place, according to Maris Ogg, founding principal of Tower Bridge Advisors.

“If you start to see the economy slowing, if companies have to cut cost, to fire people, they will invest in technologies towards more automation,” she said.

For Nicholas Colas of DataTrek Research, it is also hard for investors to evaluate the business strategies with a fairly new business model.

“Equity valuations for FANG” — Facebook, Amazon, Netflix and Google — “stocks and other internet-enabled business models is a fundamentally new challenge for investors,” he said.

“At their core, they are ideas created by a handful of people, developed/maintained by perhaps 10,000 coders — and sometimes much less — but then used by billions around the world. This is a new phenomenon, and we suspect equity markets do not yet understand what ‘correct normalized’ valuations should be.”