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Shares of Apple (AAPL) are up +35% this year, adding nearly $690 billion in market value, and the stock is nearly at $3 trillion in total market valuation. Apple and other mega-cap technology stocks have rallied sharply this year as investors have gravitated to stocks with steady revenue and massive cash flows as a haven from risks of a potential recession, U.S. regional bank failures, and now a U.S. debt-ceiling standoff.
Mega-cap technology stocks have benefited from market uncertainties this year. Investors have built sizable positions in technology, communications, and consumer discretionary stocks. According to 13F filings, the most heavily-purchased stocks in Q1 included Apple, Microsoft (MSFT), Nvidia (NVDA), Meta Platforms (META), and Amazon.com (AMZN). Their outperformance versus small-cap stocks is underpinned by money flows into large-cap-focused exchange-traded funds globally. Apple is so popular among hedge funds that 59 of them have more than 5% of their disclosed equity investments in the stock.
The rally in shares of Apple has also lifted its valuation to frothy levels. According to Bloomberg data, Apple is priced at 28 times projected earnings, a premium to its own history as well as the overall market. While Apple briefly rose above $3 trillion in early 2022, it failed to close above that level. Should Apple successfully climb above and hold $3 trillion in market capitalization, it would be the first company ever to do so. Currently, Apple is valued at $2.76 trillion and is worth more than the entire Russell 2000 Index.
Apple’s ever-increasing influence in major stock indexes means that any reversal in the rally would pose a broader risk to the markets. Apple shares represent nearly 7.5% of the S&P 500 Index ($SPX) (SPY), the top of a range it has reached several times over the past three years. According to Global X ETFs, the growing influence of big tech in major indexes puts passive investors at risk of over-exposure. “However, it does help that these businesses are some of the most innovative names in the technology world, and none are looking at a secular decline anytime soon.”
Some analysts are concerned that the ever-increasing valuation of Apple puts the overall stock market at risk. IndexIQ said, “When a company executes as well as Apple has, people may feel it is immune to risks. Right now we’re seeing the positive side of it being the biggest weight since it has delivered fantastic results and shown terrific strength, but whenever we’ve seen market concentration spike in the past, it hasn’t ended well. If Apple trips up or there’s a sense it has gotten overvalued, there’s more risk for the market overall.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
