Which Way Does Apple (AAPL) Go from Here?

Apple (NASDAQ: AAPL) became the world’s first $620 billion company yesterday. Is the tech giant on its way to becoming a trillion dollar company, or the next Cisco (NASDAQ; CSCO)?

History has not been kind to stocks with valuations exceeding $500 billion – as our own Andy Crowder adroitly chronicled when Apple crossed that hallowed barrier back in March.

Five other companies had reached the $500 billion level prior to Apple.

They were, in chronological order, Microsoft (NASDAQ: MSFT), General Electric (NYSE: GE), Cisco, Intel (NASDAQ: INTC) and Exxon (NYSE: XOM).

None of them retained their half-trillion dollar valuations for very long.

Exxon, the most recent company to accomplish the feat prior to Apple, crossed the $500 billion mark in July 2007. By early 2008, it was back below $500 billion for good.

Cisco, Intel and Microsoft all turned the $500 billion trick during the dot-com boom back in late 1999 and early 2000. When the bubble famously burst, each one of those blue-chip tech stocks came crashing back to earth. Today their combined valuation is roughly $130 billion less than Apple’s record-setting market cap.

General Electric’s $500 billion coronation also occurred around the turn of the century. Its decline since has virtually mirrored Microsoft’s.

But Apple, of course, didn’t stop at $500 billion. It took only a month for the company to blow past the $600 billion mark.

Microsoft is the only other company to eclipse $600 billion, peaking at $619 billion in late 1999. Within a year, the company had lost more than half its value.

Is Apple headed for a similar fall? Impossible to know for sure – and anyone who tells you otherwise is lying.

Here’s what we do know, however:

  • Apple is not overvalued. With a forward P/E of 12.3, Apple is actually pretty cheap for a tech stock – especially when you consider that Microsoft, Cisco and Intel were all trading at better than 50 times earnings before their comeuppances. That brings me to my next point…
  • There is no dot-com bubble this time. The main reason why those three tech stocks became so wildly overvalued in the late ‘90s and early 2000s was because the dot-come sector as a whole was overvalued. Speculation ran rampant concurrent with the Internet’s meteoric rise in the late 20th century. Now that the sector has largely stabilized – with most blue-chip, dot-com stocks now trading in line with their P/E ratios – Apple isn’t as prone to the kind of mass correction we saw in late 2000/early 2001.
  • Apple still has plenty of room to grow. The company’s profits have nearly doubled in each of the last two years. Demand for its signature iPhones and iPads continues to grow – with new versions of each reportedly set to debut within a matter of months. And even after the death of the company’s brilliant founder Steve Jobs last year, Apple remains the most innovative company on the planet, churning out newer and better products seemingly by the month.

For all its innovation and growth potential, however, there is still no guarantee Apple’s stock will continue to rise. In a global marketplace plagued by uncertainty, even a company as historically strong as Apple is vulnerable to slowing sales.

That said, I wouldn’t bet against them. Any investors who have done so over the past eight years have likely cost themselves quite a bit of money.

Make no mistake – at $621 billion, Apple has sailed into dangerous, unchartered waters.

But no company has ever been better equipped to navigate those high seas.

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