Apple (NYSE:AAPL) rose over 1% Wednesday to hit a price of $467 per share . While that might not seem like news, Apple now has a total market cap of $2 trillion–the first company to do so.
Apple became the first tech company to hit $1 trillion just two years ago, in 2018.
The company continues to dominate thanks to strong profitability and reduced share count via the most extensive buyback program of all time. It’s no wonder that shares are up nearly 40-fold in the past decade.
With the company easily handling pandemic-related fears, despite some continued rumblings from suppliers about moving out of China, it’s easy to see why some are already calling for Apple to hit a $3 trillion market cap before too long.
However, shares are currently priced at nearly 30 times earnings. The growth rate on a $2 trillion company isn’t going to be almost as big as at a smaller company.
Apple’s most recent innovations have been on the service side. While that can improve profit margins, without a significant new consumer tech hit like the iPhone or iPad, the company’s fastest growth days are behind it.
Apple’s recent surge in shares came after the company reported its quarterly earnings. But traders were more excited about the company’s upcoming four-for-one share split .
Shares traded around $400 before earnings, and the split would mean shares trade around $100. In an age where traders can buy fractional shares, that shouldn’t mean anything.
But it makes the shares more tradeable, as an options contract for 100 shares currently means about $46,700 in value. Soon, it will be closer to $11,500. No wonder the company announced that the split would bring in new investors!
Stock splits don’t reduce the total value of the company; they just change the number of shares owned and the price per share. In theory, a stock split shouldn’t do much (as mentioned above), but traders see the opportunity to bid up AAPL now instead.
That’s been a trend with other stocks as well, including a 30% rally in Tesla Motors (NASDAQ: TSLA) following its split announcement.
In the short-term, that’s created a bit of a value trap for Apple. Traders who want to own shares ahead of the split already are. After the split, demand for stocks will cool off, likely leading to a drop from here. That happened when shares hit the $1 trillion mark two years ago, after all.
A big enough drop Apple is likely to see a 20% pullback or so. That’s been pretty normal for Apple shares over the years. It also means the company’s market cap is likely to hit $1.5 trillion before heading higher to $3 trillion.
Of course, in today’s zero-percent, money-printer-go-brrr world, we may skip the selloff. But, eventually, even the best companies cool off. Apple’s time is coming.