Apple (NASDAQ:APPL) has been the shining jewel in the Nasdaq over the last year. Currently trading over $310, the tech giant performed an extraordinary feat for a company that was already one of the most valuable in the world, doubling in value from its lows in 2019.
In line with this huge spike, economist Sebastian Galy at Nordea Asset Management told CCN he’s concerned about the real possibility that we are facing another “dotcom” bubble.
First, the bullish argument: Apple is a runaway train, flush with cash and enjoying strong demand for its wireless headphones. Throw in the fact that it’s successfully cornering the Chinese market with its smartphones and some enthusiasm about the upcoming 5G compatible iPhone 12.
Combine all this with ultra-low interest rates, low inflation, and a generally positive risk environment, and it’s no wonder APPL stock is so in demand.
Except, this isn’t the whole story.
Over the past few years, Apple has embarked on an enormous share-buyback scheme. In 2019, ignited by Trump’s tax cuts, Tim Cook and the gang bought back an astonishing 6% of all outstanding APPL stock.
Averaging 5.4% over the last few years, this both squeezes the value of the stock while also increasing the dividend the company can pay. Apple’s payout per share has increased more than 80% over the last seven years, putting even more upward pressure on its value.
Nordea Asset Management’s senior economist Sebastian Galy thinks it’s time to take a tough look at just how much longer this meteoric rally can last, as he states in a comment to CCN,
Rallies statistically rarely last more than three months as they are often driven by a theme which leads to momentum followed by a squeeze that is either fatal or just a setback. The rally in the Nasdaq is reminiscent of the dotcom bubble with Apple doubling in value in a year with a long-period of momentum as defined by the RSI indicator and high P/E.
Galy’s thesis centers around his view that even the most optimistic of scenarios don’t justify Apples’s monster valuation:
Let us say that Apple has tripled in value in three years ending end 2020. Then it must eventually deliver a completely dominating position in phones, accessories and streaming or the underlying markets must have exploded in size. It would however require a massive investment and assumes that Netflix rolls over. 200-dollar wireless headphones (and soon predictable ear beads) are unlikely to resist competition.
The Nordea economist also describes how Apple is unlikely to sustain its current level of innovation, and cheaper phones with similar features are going to flood the market in the event of an economic slowdown squeezing consumer purse strings.
With a market cap of $1.4 trillion, there is no questioning how important APPL stock is to both the Nasdaq and the stock market as a whole.
With every possible fundamental pumping the price, Wall Street analysts are coming up with increasingly wild forecasts. Deja vu, anyone?
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Last modified: January 22, 2020 11:38 PM UTC