Is $3 Trillion Just the Beginning for Apple?

The stock market had great returns in 2021, and at least based on the first trading day of the year, 2022 looks like it's headed in the same direction. After getting off to a slow start in the morning hours, the Dow Jones Industrial Average (^DJI 0.81%), S&P 500 (^GSPC 0.90%), and Nasdaq Composite's (^IXIC 1.22%) all moved higher, with new all-time high closes for the Dow and S&P.

Data source: Yahoo! Finance.

Contributing to the rise in all three of these indexes was Apple (AAPL 0.50%), which finished the day up 2.5%. That left the iPhone maker just shy of a long-anticipated milestone. But for a brief part of the day, Apple's stock moved high enough to bring the company's market capitalization above the $3 trillion mark. As impressive as Apple's ascent has been, there's a good argument that the company might have a lot more growth left in the tank. Let's take a look at the reasons Apple investors should still be bullish after a monumental run higher -- and why the stock could pull all the major benchmarks higher with it.

Image source: Apple.

A big milestone

Many investors had been calling for Apple's market cap to hit $3 trillion in 2022, and the stock didn't waste any time accommodating them. Apple's stock price has soared more than 360% in the past three years, and that doesn't even include the dividend income that shareholders have received along the way.

Part of Apple's appeal in recent years has been the fact that its stock often lacked the sky-high valuations that tech investors had to pay for newer, faster-growing companies. Even now, Apple trades at just over 8 times its trailing sales over the past 12 months, and at less than 32 times its trailing net income. That's a far cry from what in hindsight seems like ridiculous bargains from a few years ago, when price-to-earnings ratios were in the low teens and the stock traded at closer to 3 times sales.

From a business perspective, Apple has benefited immensely since early 2019. The rise of 5G wireless networks has led a disproportionately large number of iPhone users to move forward with plans to upgrade in order to take advantage of increased functionality. The pandemic boosted sales of Mac laptops and iPad tablets, and the company has seen a big ramp-up in the use of the services it offers its customers. All those factors have fed Apple's growth.

Moreover, many of those factors look poised to keep boosting the company's prospects. Admittedly, it's unclear whether the iPhone 13 will prove to be the peak of the 5G upgrade cycle, but shareholders can count on new innovations keeping interest in the smartphone high. Moreover, services and hardware will continue working hand in hand to drive the value of Apple's ecosystem higher.

A big boost to the indexes

One really interesting thing about Apple is that it has such a huge impact on the popular stock market indexes. Consider today's 2.5% move and what it meant:

• In the price-weighted Dow, Apple's $4.44 per share upward move was worth about 30 points, or roughly an eighth of today's gains.
• In the Nasdaq 100, Apple has a weighting of about 11.6%, and it alone was responsible for about a quarter of the Nasdaq 100's 1.1% gain on the day.
• In the S&P 500, Apple's weight is about 6.9%. The stock accounted for slightly more than a quarter of the S&P's percentage gain.

Conversely, some have argued that Apple's gains have come at least somewhat from the rise in the popularity of index investing, especially with Nasdaq stocks. When index funds get new money, they use existing allocation percentages to buy new shares -- and that gives Apple stock a big fraction of every dollar that comes in.

Smart investors will want to keep an eye on Apple in 2022 and beyond. The company has shown the power of uniting a strong brand with booming consumer demand, and if the economy can continue to recover and grow, then a $4 trillion market cap for Apple might well come sooner than most expect.