Large influential corporations do not always try to extend the appearance of their power. It's something executives at Apple (NASDAQ 🙂 may be thinking about when the iPhone maker made global headlines this week as it became the first company to hit a $ 2 trillion market cap.
Apple has reached this milestone at a time when tech giants are being scrutinized for growing too big too quickly.
On Wednesday morning, Apple's surging stock price pushed market capitalization to levels no other company ever reached. After a 60% rise this year, its stocks were among the top risers during the pandemic, further increasing demand for connectivity, home entertainment and e-commerce.
With its popular iPhone and service ecosystem, Apple was perfectly positioned to take advantage of this new environment and further strengthened its market position. This new $ 2 trillion milestone comes just two years after it became the first US company to have a market value of $ 1 trillion. The next trillion may not come so easily.
Apple 1 Week Chart.
Below, we summarize three challenges this tech giant faces as it continues to grow:
1. App Store Business Under Probe
Apple faces increased regulatory oversight in its two largest markets : Europe and the USA. In June, the European Union announced that it had opened two formal antitrust investigations against Apple, with one of the in-app purchase system requirements guidelines investigating.
In many cases, technology companies are accused of abusing their dual roles as operators of a market and as companies that compete in that market. If found guilty, Apple could be fined up to 10% of its annual earnings and forced to change its business practices.
At the same time, the control of major US technology companies is increasing. The Department of Justice, the Federal Trade Commission, and Congress are all investigating major tech companies, including Apple, about potential antitrust issues.
In the latest sign that this issue will continue to challenge the company, Epic Games has sued both Apple and Google (NASDAQ 🙂 in federal court after the popular "Fortnite" video game was removed from app marketplaces . According to media reports, Epic sought a restraining order against Apple to prevent the game from being uninstalled and to stop Apple from removing Epic from its developer program.
2. The 5G Bet
The current valuation of Apple stock indicates that the company will soon launch a new & # 39; super cycle & # 39; will start to sell, as the latest phones equipped with the 5G, or fifth generation technology, will boost demand. Analysts generally expect Apple to launch its first 5G iPhone this fall.
And these more expensive phones can be difficult to sell as the COVID-19 pandemic continues and millions of people worldwide face job insecurity. Bank of America analysts expressed similar concerns in a recent note, citing a slowdown in Apple Store sales in China.
“Apple is experiencing a slowdown in Apple Store revenue growth in China…. We are concerned that this could herald a similar slowdown in other areas once economies reopen, such as in China. "
Apple stock, which closed at $ 473.10 yesterday, is delivering more than 32 times expected earnings – or 31 times excluding $ 81 billion in net cash on the company's balance sheet. That's also about double the multiple the stock was worth when Apple's market value first crossed the $ 1 trillion mark in August 2018.
"All that means a valuation of $ 2 trillion is that Apple investors are now willing to pay twice as much for the same earnings expectations," said Dan Gallagher of the Wall Street Journal in his analysis.
"With a major company under attack – and a lot of hype about a 5G iPhone launching this fall in a weakened global economy – that's a big gamble."
3. Continuous Innovation
Apple is a company that thrives on innovation. To further strengthen its growth cycle, it must keep its innovation machine running. In June, Apple introduced a series of software additions to its family of gadgets, including the most significant changes to the iPhone home screen since the product's release in 2007.
AirPods with surround sound and spatial audio and the Apple Watch supporting more health workouts, tracking users' dance movements and sleep are some of the examples of how Apple innovation strives to use hardware and software integration to increase stickiness of stimulate the ecosystem.
In the future, Apple should soon release new apps that can run with the faster 5G wireless speeds, making phone upgrades more attractive.
According to a Bloomberg report last week, Apple is preparing a series of bundles that will allow customers to subscribe to several of the company's digital services at a lower monthly price.
The bundles, dubbed "Apple One," are scheduled to launch alongside the next iPhone line as early as October to encourage customers to subscribe to more Apple services.
Bottom Line
Apple has proven to be a tremendous asset to long-term investors and there is no sign of its dominance being threatened. But after the powerful rally this year that pushed its market cap to the highest in the world, there is little room to make mistakes.
