The company known for making big technological strides leapt past a huge financial milestone this fall: On August 2, Apple became the first firm to reach a market capitalization of $1 trillion. Since the consumer tech behemoth reported earnings that beat analyst expectations handily on July 31, the stock had been climbing and investors had been watching closely. When the stock price for AAPL briefly hit $207.05, Apple officially passed the $1-trillion mark.
What does this mean?
Market cap is basically the value of a company and is calculated by multiplying the price of a share of stock by the number of outstanding shares. Apple's stock has become more popular as the company's become more profitable. Even though iPhone unit sales have slowed in the last couple of years, the jump in price for the iPhone X, plus expensive accessories and more money coming in from software and services helped the company boost profits by a whopping 40 percent last quarter from a year earlier. As Apple’s stock price has risen, its market cap has followed, making its size a good indicator for its strength and popularity.
Since August, another tech company has already managed to mirror Apple's trillion-dollar peak: Amazon’s stock peaked at $2,050.50 per share on September 4th, briefly pushing it to a $1-trillion market capitalization. Amazon and Apple are among the FAANG stocks, a group of tech companies—Netflix, Google and Facebook are the others—that are so widely followed by investors that the media came up with an acronym for them.
But given the nine-year bull market (the second longest in history), tech companies aren’t the only ones that have been growing to record sizes. Since last year, the market caps of the 100 largest companies in the world had gone up by 15 percent, as of the end of the first quarter, according to PwC, following a steady pattern of rising since 2009. Apple's stock price has more than tripled in the last five years (a good reminder that it usually pays to stick with it).
But does one company hitting $1 trillion matter?
Well, the Apple doesn’t fall far from the market. CNBC found, using a quantitative tool called Kensho, that Apple’s performance has closely tracked with the overall market’s movements over the past three months. That makes sense given the stock’s prominence in widely followed indexes: It weighs in at 4.1 percent of Standard & Poor’s 500-stock index and 5.4 percent of the Dow Jones industrial average. Both benchmarks are often used to represent the whole U.S. stock market.
Is it too late for me to buy it?
To use an often repeated phrase among investors, “past performance is no guarantee of future results.” Just because Apple’s gotten so big does not necessarily mean it will keep growing, let alone at the same pace. At the same time, there’s no limit to how big any company—or the stock market—can get. It’s up to you to do your homework and see what you think of the company’s potential and whether it makes sense in your portfolio.
Not up for that extra work? The good news is you probably own at least a little bit of Apple already. With its $1 trillion size and heavy weight in major indexes, it’s a big holding in a variety of mutual funds and exchange-traded funds—and likely some that you’ve invested in. That’s the great thing about investing in funds and ETFs rather than individual stocks: You get exposure to hundreds of companies, big and small, with little work on your part and relatively low costs to boot, making it easy for you stick with your investing strategy for the long term and reach your own huge financial milestones.
August 2, 2018