Predictions: Apple’s $4tn target will remain out of reach

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

In 2024, Apple will release its first new hardware product in close to a decade. If demand for the bulky Vision Pro virtual reality headsets is high, the company will be one step closer to proving that its future does not rest on iPhone sales.

Add a billion paying subscribers and a vast cash pile and its position as the most valuable stock makes sense. In the past five years it has surpassed $1tn, $2tn and $3tn market cap milestones. But its path to becoming the world’s first $4tn company will be steeper.

On the plus side, Apple’s net income margin has remained high thanks to growth in services such as streaming and payments. However, revenue is forecast to drop 3 per cent in fiscal 2023 year as global demand for new smartphones slows. VR headsets are not expected to make up for this decline.

There is also a noticeable gap between Apple’s market cap growth and its profit expansion. Apple became a $1tn company in the summer of 2018. Since then its market value has almost tripled. Over the same period, annual net income has grown by 63 per cent.   

The distance between the two does not bode well for the market cap growth spurt necessary for the company to reach $4tn. The stock trades at 27 times forward earnings, according to S&P Capital. At this multiple, next year the stock would trade at about $3tn.

Apple can help matters by using its $166bn cash pile to buy back more shares. Having bought a fifth of its own shares since 2018, Apple stays popular with investors. But high interest rates could damp demand for its shares. 

Problems in China may also eclipse any financial engineering. As its third-largest market by sales, clearly Chinese consumers value the Apple brand. But some government agencies have banned the use of its devices. Should a wider crackdown follow, that will give domestic rivals a leg-up. The sales hit would not only put a $4tn valuation out of reach, it could also knock Apple off its top rank in the US stock market.

Listen to Lex deputy editor Elaine Moore talk to creators, companies and critics about the next era of social media in the FT’s new Tech Tonic podcast series.