Apple Market Cap Nears $2 Trillion As Tech Sell-Off Deepens
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On the first trading day of 2022, Apple passed a significant market cap milestone by reaching $3 trillion. But since then, its value has plummeted, and as of yesterday, it barely exceeded $2 trillion. In 2020, Apple became the first business to ever reach a market cap of $1 trillion. It achieved a market cap of $2 trillion for the first time ever in August 2020, making it history. It has held the title of the largest company in the world for a while, but it has twice temporarily lost it.
This week, Apple reached a somber milestone by dropping by about $1 trillion from its peak in 2022. The company’s shares have increased recently, but the steep decline in value reflects the challenging economic conditions facing businesses not just in the tech sector but across all industries.
In 2022, the tech-heavy Nasdaq fell by roughly one-third while the larger S&P 500 fell by 19%. Apple’s performance, on the other hand, dropped 27% over the course of the year, falling exactly in between those two indices. According to analysts, the decline of a long-standing industry leader like Apple highlights trends that will put the U.S. economy in danger in 2022 and place it in a precarious position as the new year gets underway.
Apple is just ahead of Microsoft Corp., which is currently valued at $1.78 trillion, at the current price of its stock. Analysts generally anticipate the Cupertino, California-based company to report a 1% decline in December-quarter revenue in the coming weeks, according to Refinitiv, adding credence to investors’ concerns that a slowing global economy and high inflation may be hurting demand for Apple devices. Apple’s revenue would drop for the first time in a quarter since the March 2019 quarter.
According to Kim Forrest of Bokeh Capital Partners, “They (Apple) tend to skew to the high-end consumer device customer, but even that demographic might be being affected by the high price of everything.” Heavyweights in the tech industry suffered during last year’s sharp Wall Street sell-off as investors dumped stocks with high valuations out of concern for rising interest rates. Apple, Microsoft, Amazon.com Inc., Alphabet Inc., and Meta Platforms’ combined stock market value now makes up about 18% of the S&P 500, down from as much as 24% in 2020.
Even after losing 27% of its value the previous year, Apple has still given long-term shareholders fantastic returns. Investors who purchased and held Apple stock when co-founder Steve Jobs unveiled the iPhone in 2007 have profited by over 4,000%, excluding dividends, as opposed to the S&P 500’s 180% gain during the same time period.
A shift away from pandemic-era consumption that turned around the fortunes of big and small businesses, a near-historic rise in inflation that prompted the Federal Reserve to act aggressively, and supply chain disruptions that subsided but persisted with zero-COVID lockdowns in China are just a few of the factors that have squeezed Apple and the broader economy, according to analysts.
According to Angelo Zino, senior industry analyst at CFRA Research, “you’re talking about $1 trillion wiped out from the economy in one stock – it’s a big number and it isn’t something that should be ignored.” A request for comment from Apple was not immediately complied with.
Why Apple lost nearly $1 trillion in value in 2022 and what it says about the state of the U.S. economy.
As pandemic fears subside, consumer preferences change
Apple, like many other tech companies, has been harmed by a significant consumer shift away from the pandemic-era focus on purchasing goods.
At the height of the pandemic, millions of people facing lockdowns around the world substituted couches, exercise equipment, and technology for restaurant purchases. For instance, Apple’s profits during the first three months of 2021 increased significantly when compared to the same time last year.
According to Mark Zandi, chief economist at Moody’s Analytics, “people were home buying computers, playing with gadgets and consumer electronics – all the things that Apple sells.” According to Mark Zandi, chief economist at Moody’s Analytics, “people were home buying computers, playing with gadgets and consumer electronics – all the things that Apple sells.”
Consumers have prioritized spending on the experiences they passed up while cooped up inside, though, as pandemic fears have subsided. According to research firm Gartner, this fall’s demand for personal computers dropped by almost 20% from the same period last year. According to Zandi, this shift in taste has hurt Apple’s and many other tech companies bottom lines. People have been shifting their spending away from consumer electronics toward travel, restaurants, and sporting events, he claimed, as the pandemic has started to wind down.
Inflation rises and aggressive interest rate hikes follow
Rapid price increases and the Federal Reserve’s policy response, which has slowed some sectors of the economy and devastated the stock market, have also been problems for Apple. Inflation peaked in June at 9.1%, a level not seen in more than 40 years. The Federal Reserve has implemented a string of aggressive interest rate increases in an effort to curb the cost increases.
In theory, a rise in the benchmark interest rate should reduce inflation by slowing the economy and eroding demand by increasing borrowing costs for individuals and businesses. This implies that borrowers, whether they are individuals or businesses, have a harder time getting loans, which are essential to economic activity.
Investors typically flee when interest rates are raised because of the negative effects on the economy and corporate profits. Since investors initially selected tech stocks like Apple based on their strong profit growth, which now seems increasingly improbable as interest rates rise, Zandi said that pain is especially acute for those companies.
Investors are purchasing their stocks because they anticipate continued profit growth, he said. “They take a beating,” Consumers may be burdened by high prices and rising borrowing costs, which can eat away at savings and prevent them from spending on things like iPhones or MacBooks.
Savings from the pandemic contributed to consumer spending’s resilience for much of the year, but the safety net seems to have diminished recently. According to information from the Commerce Department, the personal savings rate decreased to 2.3% in October, the lowest level in almost two decades. For a business like Apple, Zino said, “the state of the consumer is extremely important.” He added that the company could withstand a potential decline in consumer spending because many people view products like the iPhone as necessities.
Supply-chain stumbling blocks
Like many other businesses, Apple has struggled with supply chain disruptions brought on by the pandemic that has slowed down production and delayed deliveries. Although the worst of the global supply shortage has subsided, obstacles still exist, most notably in China. The “zero-COVID” policy of the industrial behemoth has led to sporadic shutdowns that have forced factories to close and production to stop.”Apple is very active in China,” Zandi said.
Workers at the largest iPhone factory in China, located in the city of Zhengzhou in the center of the country, disappeared out of fear that management would impose a mandatory quarantine due to a recent COVID outbreak. According to a report published last month by Wedbush Securities analyst Dan Ives, China’s zero-COVID policy generally caused significant iPhone shortages leading up to the holidays. He discovered that shortages caused overall iPhone demand to outpace supply by a factor of three, with some stores experiencing shortages of as little as 35% of typical holiday inventory.
Analysts noted that China has recently loosened its zero-COVID policy, providing a glimmer of hope for businesses with significant supply hubs there like Apple. By some point in January, Zino predicted that the China-related delays in the delivery of some iPhone models would have “largely been resolved.” Zandi predicted that manufacturing output could resume normal levels in the spring or summer of 2023, despite the fact that many anticipate a coronavirus outbreak as the nation reopens.
Apple is still the most valuable company
For instance, Microsoft briefly outperformed Apple in terms of market capitalization last year. Once again this year, Saudi Aramco outperformed Apple in terms of market cap. But Apple quickly reclaimed first place. Apple remains the most valuable company in the world despite the recent crash.
While the US stock markets as a whole crashed in 2022, the sell-off in tech names was quite severe. While the market caps of Meta Platforms, Tesla, and Amazon have fallen below $1 trillion, Microsoft and Alphabet no longer qualify as $2 trillion companies. With a market cap of more than $1 trillion, only Apple, Alphabet, and Microsoft remain. In addition, the S&P 500 has underperformed all of the FAANG stocks this year. The best performer among the group, Apple, is still down about 27%, which is less than the decline in the Nasdaq.
Tech stocks crash in 2022
The S&P 500’s top losers this year include Tesla and Meta Platforms, the worst-performing FAANG stock of the year. Over half of the market caps of Amazon and Netflix have also been lost this year.
Amazon actually made history by losing more than $1 trillion in market capitalization for the first time. However, the majority of analysts are bullish on the stock for 2023, and numerous brokerages have listed it as their top pick for 2023.
Is Apple still a safe haven?
Apple stock fared relatively well despite the fact that US stock markets were weak throughout the year and consistently hit lows. Analysts on Wall Street considered Apple and Alphabet to be reasonably safe investments. The two are the best-performing FAANGs in that order, have fallen much less than FAANG peers, and have somewhat justified their status.
However, Apple has lost the majority of its pandemic gains and has sunk to new 52-week lows. Many believe that the decline in Apple stock indicates trouble for other markets as well.
The analyst believes the AAPL stock is technically bearish.
“One of the most important items we’ll be watching over the next week or two will be the action in Apple,” wrote Matt Maley, chief market strategist at Miller Tabak, in a client note. “The reason that the $130 level is so important is that it’s where the lows from June come in,” he continued (which was the low for 2022). Therefore, any significant break would result in a crucial “lower-low” for the stock. and that would be quite bearish given that Apple has already broken below both its 200-day moving average and its trend line from the March 2020 pandemic lows. A decline in Apple stock, according to Maley, would not be favorable for the larger markets either.
Apple suffers from issues with its supply chain.
Due to the increase in COVID-19 infections in China, Apple’s main source of supply, the company has experienced supply chain problems. Apple previously acknowledged having problems with its supply chain due to the outbreak at Foxconn’s Chinese facility. Several customers expressed disappointment that the iPhone 14 was not readily available during Cyber Week.
“We are again moderating our expectations for the Dec-Q (F1Q23) on the back of the impact of the recent supply chain challenges faced by Apple in relation to operations at Hon Hai’s assembly facility in Zhengzhou, China,” wrote JPMorgan Tech Analyst Samik Chatterjee in his note.
iPhone sales might be hit in the holiday season
The holiday season, which is Apple’s strongest time of year, coincided with supply chain problems. While the rapid extension of lead times for the iPhone 14 Pro / Pro Max has slowed down and, in fact, started to moderate recently, Chatterjee continued, “We continue to see the supply shortfall continuing through year-end and impacting the typical seasonal uptick in iPhone volumes seen in Dec-Q. It still remains elevated relative to the lead times seen prior to the COVID outbreak in Zhengzhou.”
Does Warren Buffett continue to purchase Apple stock?
After a break of more than three years, the chairman of Berkshire Hathaway Warren Buffett increased his holdings of Apple shares in the first half of 2022. Buffett acknowledged that he made a mistake by selling some shares during that time period.
Markets are now questioning whether The Oracle of Omaha would purchase APPL stock again as it has dropped to its lowest level since 2020. In the middle of February, Berkshire Hathaway would release its fourth quarter 13F, which would give us details on Buffett’s stock buying and selling activity for the period.
Apple’s earnings for the December quarter, which are expected to be released toward the end of January, will be the next significant indicator that investors will be keeping an eye on. Markets would be watching for commentary on the supply and demand situation for iPhones in light of the weakening global economy and an increase in COVID-19 cases in China.