Apple hits $1TN valuation, but techs in general are the big story of our time

Apple has done it again, delivering more impressive results as it moves closer to a trillion dollar valuation. But their rise shows something bigger is happening.

Article updated: 1 August 2018 9:00am Author: Michael Baxter

In 2007, the iPhone was released. So was the Kindle. In that year Twitter and Facebook went global, Airbnb was founded, Google bought YouTube and IBM created its artificial intelligence system Watson. According to Thomas Friedman, it was the year the world changed forever.

Then, in the following year, we had the biggest crash since 1929, and this was followed by a kind of mild version of what happened in the 1930s.

The other day I was criticised for being too negative - indeed of only being capable of writing doom and gloom. In fact, from 2013 to 2016 I wrote innumerable pieces suggesting that the economy had turned upwards and that this would be reflected in stock markets. I also wrote several pieces slating reports elsewhere that had predicted doom and gloom. My position began to change with the election of Trump, something I believe the markets have been way too complacent about.

It is just that the techs have been shining out, even in times when all around it is dark.

The last time I was accused of being too negative was in the first few months of 2008. But even in that year, the techs were creating something extraordinary.

Apple

Apple’s latest results were impressive for more than one reason. For one thing, despite flat unit sales of the iPhone, profits leapt 32 per cent. They rose in part because the real miracle of the iPhone is that sales are not falling despite the iPhone price rocketing. But Apple’s results were also impressive because of growth in revenue from services, which seem to be on course for becoming the most important part of the business within two years or so, for sales growth in other products such as its watch and for its success in China.

In after hours trading, shares rose such that market cap was knocking on the door of a trillion dollars. It is always dangerous to write about these things in advance, but barring some catastrophe, it seems Apple could pass a trillion dollars before the summer is up. Editor's note; Apple in fact reached the one trillion dollar value just two days after this article was published.

No tech crash

And all this just a day after various reports suggested we were seeing the beginning of a tech crash. Both Facebook and Netflix disappointed the markets with their latest results, and shares in Alphabet and Amazon got caught up in the fall.

But although many are predicting it, I think a tech crash is unlikely. Indeed, I go further. With dangers of a trade war, with the real risk that global factors may force global interest rates up when debt levels are so high, I would say that the techs represent a good hedge against wider weakness.

The revolution

Returning to 2007, in that year, between them, Apple, Alphabet and Amazon were worth around $300 billion, as I write, combined market cap is $2.7 trillion.

Interestingly, the laggard of the three was Alphabet, shares have merely increased by 500 per cent since 2007. Apple is up ten fold, Amazon is up between 20 and 40 fold, depending on when in 2007 you make your comparison.

The fourth industrial revolution

But we are at the early stages of the fourth industrial revolution. This will eventually make the industrial revolutions of the past seem mild. When the dust is settled on this revolution, if it ever settles, the economy and our lifestyles will be unrecognisable from today - for better or ill. Meat will be grown in factories, clothes will be impervious to water, meaning they will never need washing, energy costs will be a fraction of what they are today, we will live longer, diseases currently considered incurable will have cures, and our brains will be augmented by AI and chips.

We won’t have smart phones any more, the technology will be embedded into our clothes, glasses, probably contact lenses and maybe our brains.

In the year 2028, the combined market cap of the three biggest companies will be more like $20 trillion.

It may all go horribly wrong, of course. But then that is why investors need a diversified portfolio with at least some stocks to act as hedges against economic disaster.

I don’t know who the three biggest companies in the world will be in 2028, but it is a not unreasonable to predict that the three biggest listed-companies in the world today will be there or thereabouts, with a smattering of Chinese techs (such as Alibaba and Tencent for example) and one or two other firms that are currently either much smaller or non-existent, also in the running.


These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.

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Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.