How Much Bigger Can Apple Get?

Apple (Nasdaq: AAPL  ) started out 2011 in style by hitting a nice, arbitrary milestone: The company's market cap now stands above the $300 billion mark.

To put that figure into some kind of perspective, you have to resort to ridiculous exercises. If you could liquidate Apple today at full market value (and not counting the $25.6 billion of cash equivalents on Apple's balance sheet), you could:

  • Fund both the Apollo space program ($120 billion in inflation-adjusted dollars) and the International Space Station (estimates top out at $160 billion). You'd even have $20 billion left over to build a couple of large hadron colliders.
  • Install fiber broadband to 93% of Australian homes and businesses -- about five times over. Or, make a rather large dent in the woefully lacking broadband infrastructure of the United States, perhaps by buying into the audacious fiber networking plans Google is brewing.
  • Buy out AT&T (NYSE: T  ) and spend $125 billion to make its networks capable of handling iPhone and iPad-related data traffic -- and maybe even complete the occasional voice call without dropping the connection.
  • Buy a 32-gigabyte iPad with WiFi and 3G connectivity for every man, woman, and child in North America. Talk about a virtuous circle!

Apple would need another 25% boost to pass ExxonMobil (NYSE: XOM  ) and become the largest company in the world as measured by market cap. Apple generated $14 billion of net income over the past four quarters, which is about half of Exxon's total.

I'm not saying that Apple needs to be worth less than half of what Exxon is fetching -- after all, Apple is still a growth stock and Exxon is not. But I am questioning whether Cupertino can support this nosebleed valuation for much longer using its current playbook. Sure, the iPhone and iPad are nice, but not very different from scaled-up iPods with some extra features. At some point, the addressable market will be saturated and Apple's stock will drop back to earth.

I'm not calling Apple out as the worst stock for the year, as I did in 2010 with terrible results. It could, however, be the worst stock to own over the next 10 years as the realities of competition and Steve Jobs' handwaving magic will evaporate.

If Apple is the biggest company in the world by 2021, I'll eat my left shoe -- hold the salt.

Fool contributor Anders Bylund owns shares of Google but doesn't hold a position in any of the other companies discussed here. Google is a Motley Fool Inside Value selection and a Motley Fool Rule Breakers pick. Apple is a Motley Fool Stock Advisor recommendation. The Fool owns shares of Apple, ExxonMobil, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


Read/Post Comments (25) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 03, 2011, at 8:30 PM, PeyDaFool wrote:

    "If Apple is the biggest company in the world by 2021, I'll eat my left shoe -- hold the salt."

    Boy would that be gratifying. Anders, you've been wrong about Apple time and time again. Rather than "hold the salt," I suggest your readers take your advice with a grain of salt... it might be easier to stomach.

  • Report this Comment On January 03, 2011, at 8:34 PM, DefunctAcct wrote:

    It is certainly important to look at what any company needs to do in order to continue to grow.

    For Apple, one would examine its technologies, its product strategy, its failures and successes and its competitors. Then one has to learn the technologies, anticipate how they will evolve and influence their applications. These two things can yield a fairly concrete view of what Apple may need to do, where it needs to be and how it needs to get there.

    Without any of the above, and simply saying that some day, some where, some how, increasing competition and "fading hand-waving magic" will cause all this to end, is unfortunately meaningless.

  • Report this Comment On January 03, 2011, at 8:44 PM, cfpeterson wrote:

    So only up 50% or so this year? Wow, you can pick'em. My worst stock last year actually lost money. I have to say that every time I read what a dog Apple is, I want to buy more.

  • Report this Comment On January 03, 2011, at 8:52 PM, DutchMark wrote:

    "Sure, the iPhone and iPad are nice, but not very different from scaled-up iPods with some extra features."

    ROFL! No wonder last year's prediction didn't go so well.

  • Report this Comment On January 03, 2011, at 8:57 PM, amitnarayan wrote:

    I checked all the other articles of this author. They are all equally 'content-less'. I am surprised that The Motley Fool is putting their name on articles published by this person. Seriously dilutes the TMF brand.

  • Report this Comment On January 03, 2011, at 9:03 PM, Timmybob3349 wrote:

    With Apple's forward PE still about 22, even though the stock is expensive on a per share basis, it's cheap others. If Apple gets to $500 and does a 10:1 like Bidu, you will be eating your left shoe way before 2021.

  • Report this Comment On January 03, 2011, at 9:07 PM, xmmj wrote:

    Take this article, repeat every January. In 10 years you may have come to the end of Apple growth.

    ---

    "Apple, whose i-products have revolutionized music, smartphones and mobile computing, trades at a forward multiple of just about 15 times earnings. Amazon, however—which is no doubt a great company in its own right, but still—trades at 50.

    No wonder Cramer called Apple “radically cheap” during Monday’s “Stop Trading,” even though the stock had hit a new 52-week high at about $330. The “Mad Money” host’s price target for AAPL had been $325, but he will soon, along with a number of analysts most likely, issue a new target soon. He said the fact that Apple had broken through the “gravity” of that level, more gains should be coming.

    “It’s going higher,” Cramer said of Apple."

    ---

    http://www.cnbc.com/id/40885036

  • Report this Comment On January 03, 2011, at 9:08 PM, sidste wrote:

    "OMG, its HUGE!" is not a very rigorous analysis.

    Why not look at AAPL's market share in each of its products, the growth rate of those markets, and where AAPL will probably end up. I think you will see plenty of room for growth.

  • Report this Comment On January 03, 2011, at 9:09 PM, xmmj wrote:

    Ancient saying: "He who makes prediction based on bias and disregard for reality is a fool. He who repeats that prediction one year later is an idiot."

  • Report this Comment On January 03, 2011, at 9:38 PM, CascadeHead wrote:

    Hey Anders, there's this thing called "P/E" you might want to look up. Apple's fwd PE is less than the S&P 500's. That's like Michael Jordan making less than the average of the other 300 players in the NBA.

    No discussion of P/E, its massive earnings or revenue growth, expanding iPad and iPod sales, upcoming Verizon deal, nothing. Just, "OMG market cap!" You actually get paid for this "analysis"?

  • Report this Comment On January 03, 2011, at 10:33 PM, aig09 wrote:

    No wonder you are always wrong about Apple and probably about your other predictions as well. Your prediction is based on your assumption that Apple will still be selling IPads and IPhone in 2020, of course it would fail. But Apple will reinvent itself and roll out smashing products to lead the competition. Apple has done it in the past, but your annual wishful thinking is that apple will soon cease to be creative.

  • Report this Comment On January 03, 2011, at 10:56 PM, skippywonder wrote:

    You know a television could be described as a scaled up radio with some extra features...

    Features matter.

  • Report this Comment On January 03, 2011, at 11:03 PM, Henry3Dogg wrote:

    Anders

    I think you've a scratched your. Click!

    ...scratched your. Click!

    ...scratched your. Click!

    ...scratched your. Click! Record.

  • Report this Comment On January 04, 2011, at 12:59 AM, jjfad101 wrote:

    childish article. no reasonable arguement is presented here. very childish. how come Apple non-believer's can only say Apple can't be because no other company had been. Stupid argument.

    Amazing to learn how idiotic and uninformed many of supposedly knowledgeable investors are. With all the faults of analists, they have been right on Apple mostly..

  • Report this Comment On January 04, 2011, at 3:37 AM, ozzfan1317 wrote:

    I think a better argument would be how much market share can they capture and what will they do to continue growing? At This Market Cap you have to hope for 15% Growth at least and or share buybacks. If they paid a dividend at this price I would be much more likely to invest.

  • Report this Comment On January 04, 2011, at 4:56 AM, Henry3Dogg wrote:

    @ozzfan1317 is right to say that you should look at market share.

    So Apple has

    ~5% of the PC market.

    ~5% of the phone market

    ~15% of the music market

    ~5% of the video market

    ~1% of the TV device market

    ~80% of the tablet market

    ~80% of the MP3 player market

    But it only created the modern tablet market 9 months ago and it is expected to grow rapidly as a market.

    MP3 players is the only area where Apple's size restricts it's growth, and even in that area Apple is managing to increase average selling price by adding functionality.

    Bottom line then from looking at market share is that Apples current size has maybe x4 headroom before it's size restricts it EVEN ignoring Apples record as a serial innovator in new markets.

    My prediction for the new year is that Anders will continue to predict the imminent demise of Apple, no matter what, because it gets hits on his page.

  • Report this Comment On January 04, 2011, at 5:15 AM, jaketen2001 wrote:

    Henry3 & ozzfan: 100% right--how could you not analyze market share for this article?

    anecdote: Chinese people are purchasing extra iphones in Manhattan, and shipping BACK to China! And Apple has/will shortly begin retailing them there--how much is that market going to grow--the two largest future markets, India and China, are still being built out

    4x is a reasonable metric re how much can there share grow in certain markets

    the stock could easily be a double+ from here

    start boiling the leather

  • Report this Comment On January 04, 2011, at 8:09 AM, rburke01 wrote:

    Wow, what audacity. After his pathetic prediction last year Anders actually had the guts to crawl out from under his rock and make an equally ridiculous negative prediction about AAPL? This is a company with the most in-demand products in the world, some of the best margins around, a proven track record for innovation, the strongest balance sheet I have ever seen and market saturation no where in sight.

    Mr. Bylund really should find a different hobby.

  • Report this Comment On January 04, 2011, at 11:37 AM, naandrews wrote:

    "But I am questioning whether Cupertino can support this nosebleed valuation for much longer using its current playbook."

    I just don't understand how anyone can say Apple sports a "nosebleed valuation." At worst it is fairly valued, at best it is undervalued to a significant degree, to the point where noted value investors like David Einhorn like the stock!

    There simply is just no evidence that this stock has a nosebleed valuation, and I don't understand how the author comes to that conclusion. Just because you have a huge market cap doesn't mean you have a nosebleed valuation; it just means you're a big company.

    In fact, Apple is selling at less than its growth rate!

    Anders, please explain how you get "nosebleed valuation," because all the evidence actually indicates the opposite -- it's an excellent value here.

  • Report this Comment On January 04, 2011, at 11:58 AM, HiramWalker wrote:

    By citing "Steve Jobs' handwaving magic" the writer reveals that he is just another Windows hack who just doesn't get Apple. These shallow thinkers feel that any Apple success is merely due to sham marketing and cult fandom. They have never investigated Apple products thoroughly enough to understand that quality is worth the extra money.

    Oh well, keep sticking with your story, as even a stopped clock is right once every 720 times.

  • Report this Comment On January 04, 2011, at 5:24 PM, Fidelity123 wrote:

    What in -ell is he trying to say ? Is this mean its good

    or bad ?

  • Report this Comment On January 04, 2011, at 5:26 PM, Fidelity123 wrote:

    Anders, Are you a professional or novice?

    If a pro I quit this subscription.

  • Report this Comment On January 04, 2011, at 6:27 PM, rgardner101 wrote:

    Anders, I want to personally thank you for your articles, because when you post an article everyone else jumps in and provides sound reasons why Apple is still a tremendous stock to own and yes I plan to stay long on Apple.

  • Report this Comment On January 05, 2011, at 6:33 PM, TMFZahrim wrote:

    @rgardner, you get it. I'm not telling anyone to burn all their Apple shares today and run screaming the other way -- but we do need some healthy debate to balance the Jobs worship you see in a lot of places. If I made you think about the stock and you ended up liking it better afterwards, I think I did my job.

    Anders

  • Report this Comment On January 06, 2011, at 11:10 AM, naandrews wrote:

    Anders, I agree that healthy debate to balance the bull arguments is great. My problem is rather that you didn't provide any evidence to support the view that Apple sports a nosebleed valuation -- where is the evidence for that? Just because it is a big company doesn't mean it is overvalued.

    If it's so overvalued, why are value guys interested in it? And why is it selling at a discount to its growth rate?

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