Apple’s Very Long Road to $1 Trillion

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Apple Inc.’s (NASDAQ: AAPL) strong earnings led to more conversation about its chances to be the first public company to reach a market cap of $1 trillion. The chances it can get there are long, and getting longer.

At $196, Apple’s shares are at an all-time high. Its market cap is $935 billion, which means if the stock rises 7% it will reach $1 trillion. There is a strong case that, because its stock is up 27% in the past year, and new earnings have only moved it slightly higher, strong earnings news was not enough to convince investors that the sharp share increase deserves another push. As investors sometimes say, all the good news is already out.

And the good news is out, for at least another quarter. The earnings improvement had two legs, one of which is in jeopardy. Revenue from Apple’s services business rose 31% to $9.5 billion. It has become Apple’s second largest business after the iPhone. The growth of this business shows signs of more improvement. The other leg of Apple’s strength was iPhone revenue, which rose 20% to $30 billion. However, iPhone unit sales were only up 1%, so Apple has relied on a higher price per phone to make up the improvement.

iPhone prices are risky to rely on for more revenue. They are already the highest in the industry. Consumers may have reached their limit in terms of what they will pay for a single smartphone. Certainly, the price per iPhone cannot move higher by much more before it reaches $1,000. On the other hand, the market is filled with well-featured smartphones that cost less.

The stock market, and particularly the tech segment, has become a graveyard for investors. Apple may be unable to resist the sector’s share price struggles as Wall Street turns against the belief that a very few huge tech companies can continue to dominate the industry. The assumption has been aggressively questioned by investors in Facebook. Even Amazon’s share price has flattened in recent weeks, despite good earnings.

Finally, the stock market itself could cut the surge of high-flying shares. The large indexes have moved sideways this year. More and more, analysts believe there will be a correction that could be caused by, among other things, a trade war or the growing belief that stock prices have flattened because they cannot be supported by earnings expectations for the balance of the year.

Apple’s shares only have to rise 7% for its market cap to reach $1 trillion, but that may be a very long way to go.