Another day, another analyst shouting BUY BUY BUY on Apple’s stock, based on the upcoming iPhone 8 launch. This week, Credit Suisse analyst Kulbinder Garcha raised his estimate for the firm’s stock price to $170, based on his belief that “pent-up demand” for a new iPhone will create a “supercycle” of upgrades, sending Apple’s profits into the stratosphere and investors into a tizzy.
No-one’s denying that Apple is going to make a dumpster-truck of money on the iPhone 8, and will continue being the world’s greatest smartphone company, etcetera. But the size of the iPhone 8 launch, and the company’s current valuation, is still being blown way out of proportion.
Cast your mind back to November 2016: a simpler time, when we didn’t know Donald Trump would be President, and Apple’s stock was trading at $104. Today, it’s at $143, and supposed to go to $170. Between then and now, the only significant thing that’s changed is a bunch of rumors about the upcoming iPhone 8 launch. But somehow, based on that, Apple’s perceived value has risen by over $250 billion and counting.
Sure, Apple’s services sectors are doing well, and Trump’s tax plans could be more friendly to Apple. But analysts still seem to be betting that the iPhone 8 will create at least $100 billion in extra value over a “boring” iPhone launch.
Let’s put that in perspective. The iPhone 6 and 6 Plus launch, the last major iPhone refresh, saw Apple sell 300,000 more iPhones than the year before. During Q4 2016, the quarter in which Apple launched the iPhone 7, Apple collected $11 billion in net income.
If the analyst’s prediction is right and Apple’s stock rises to $170, that puts Apple’s market cap at nearly $900 billion. It was $585 billion in November 2016, which means that between November last year and the iPhone 8 launch, Apple will be $300 billion more valuable.
So, the conclusion is one of these:
- Pre-November last year, analysts and the stock market were undervaluing Apple by hundreds of billions of dollars, or;
- The iPhone 8 and more iTunes sales are going to create $300 billion in extra value, or;
- The current valuation of Apple is insane and based on gut feel and hype, rather than a sane economic valuation of the company.
To be clear, I still think that Apple’s stock is going to go up when the iPhone 8 launches, and the company will remain in rude health for years. But a stock price and a market valuation isn’t meant to be an arbitrary number that goes up and down, based on on quarterly results: it’s meant to represent the value of a company, taking into account current assets, profits, and future perspectives. Unless Apple’s entire future has got 60% better in the last year, analysts are guessing, rather than analyzing anything.
