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An analysis of Apple's 3 trillion dollar market cap

March 09, 2022
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The stock market boom experienced throughout the pandemic was temporary for most companies. However, there is one major industry giant that has continued soaring above the rest. One of the leading companies in technology, Apple, trounced earning expectations in the fourth quarter. When the market closed on February 3rd, 2022, Apple weighed over 7% of the S&P 500 and has shown no signs of slowing down.

To visualize just how powerful Apple is in our economy, we can take a look at one tech industry giant of our past, IBM. IBM was the first major American computer company and was once the largest company in the S&P 500, weighting at 6.4%. Apple is now even more powerful than IBM was in 1985, setting a new record weighting over 7%. Apple did so by becoming much more than a computer company. It’s evolved into a consumer staple that serves as a computer, phone, GPS, streaming service, and fitness tracker, amongst other things. In simple terms, it’s become a one-size-fits-all essential tech product, a product we dreamed of owning and experiencing in the past. However, many of us are blinded by our love for our convenient pocket-sized devices and are left unaware of the potential issues that arise from a company attempting to dip its toes into too many markets.

Companies that take over specific market sectors become monopolies. However, Apple has become more than a monopoly, it’s grown to become a consumer necessity, and it’s taking advantage of this by doing everything in its power to take market share from numerous industries. This is causing Apple’s consistent increase in its already enormous market cap percentage within the S&P 500 and Nasdaq indexes. 

To prove this point, we can take a look at what many deem the “Apple’s Tax.” A revenue share percentage Apple collects from companies in its app store. This tax takes a pretty significant cut, around 30%, of all in-app purchases in the app store. According to Statista (2021), roughly 47% of smartphone users own the iPhone. Therefore, if a company chooses not to have their app available in the app store, they are leaving out half of their consumer base, which to most companies is not an option. As a result, Apple has not only gained insight and data from almost every company with an app, it also takes a hefty cut of sales from them.

https://www.statista.com/statistics/236550/percentage-of-us-population-that-own-a-iphone-smartphone/ 

Apple’s control over other companies goes further than just revenue cuts. Apple’s recent privacy update gives users a choice to opt-out of allowing advertisers to use their device ID. According to Vegvari (2022), this small update resulted in big losses for major advertising hubs, such as Facebook and Snapchat. Meta Platforms (Formerly Facebook), in particular, has vocalized its frustration with Apple’s update. Meta’s chief financial officer, David Wehner, said, “Google Chrome, for instance, does not ask permission to track users across other apps and websites, unlike the measures instilled on Facebook and other apps. Google Chrome can track users and offer personalized ads much easier. Apple continues to take billions of dollars a year from Google Search ads, [so] incentive clearly exists for this policy discrepancy to continue (para 5).”  It’s clear that Apple has the ability to pick and choose which competitors it wants to affect financially with its updates, and in this case they did not want to hurt Google, as they are incentivised not to. Meta’s stock (FB) plunged in the wake of their earnings call in January, when they announced that they expect a near 10 billion dollar loss from this privacy change. Whereas Google’s stock rose over 10% at one point following their earnings call the same week. Therefore, It’s questionable whether this update was made for privacy reasons. Many speculate that the update is just another way for Apple to keep it’s strongest competitors at bay and its allies happy. https://www.iphoneincanada.ca/apple/apples-app-tracking-transparency-cost-facebook-10-billion/#:~:text=%E2%80%9CApple%20continues%20to%20take%20billions,apples%2Dto%20apples%20for%20us

Through these efforts, Apple is crushing its competitors, but they don’t stop there. Apple goes as far as to recreate competitor products using the data they collect on them through their platforms, vast financial resources, technology, and branding to shut them down. 

Apple famously did so with Peloton by creating Apple Fitness+. Consumers and Apple alike marveled at Peloton’s outstanding growth during the pandemic by becoming an essential “stay-at-home” fitness product when gyms were closed. Apple saw a perfect opportunity to use its resources to deliver a fitness product that syncs up perfectly with a user's Apple devices, something Peloton wouldn’t have any power to do. Not to mention that a user's music syncs up much better with Apple Fitness+ workouts as well. According to Smith (2022), at one point Pelonton stock dropped over 80% from it’s peak 2020 values, and many credit much of this decline to Apple’s Fitness+ (para 2). https://www.barrons.com/articles/peloton-stock-price-slide-bike-demand-51641341541 

According to Potuck (2022), Apple pulled a similar stunt by creating the air tag, which was aimed at taking down Tile. Tile is a Bluetooth-powered keychain that allows users to find lost items attached to it. Apple’s air tag is almost a direct copycat. However, to no surprise, the air tag syncs up conveniently to apple devices and offers a more precise location of any lost items (para 5). https://9to5mac.com/2021/04/20/tile-spooked-by-airtags-competition/ 

Additionally, according to Tung (2021), although Apple was far from the first company to create a smartwatch, they are the leading company in the market (para 1). Again, they did so by creating a product that syncs up conveniently with other Apple devices. 

https://www.zdnet.com/article/apple-watch-continues-to-dominate-can-any-other-brand-catch-up/#:~:text=But%20looking%20at%20smartwatches%20alone,leaving%20it%20with%207.1%25%20share

Apple is attempting to make similar moves in the world of streaming through its creation of Apple TV. However, according to Espósito (2022), Apple TV has not come close to reaching the immense success of the leader in the streaming space, Netflix, with only 5% market share vs Netflix’s 25% (para 1). Although Apple may not be a leader in the streaming market, they still have yet another piece to add to their wide portfolio of products and services. https://9to5mac.com/2022/01/24/apple-tv-market-share-grows-in-the-us-while-netflix-loses-ground-to-its-competitors/ 


Most recently, according to Aten (2022), Apple introduced a feature coming soon to the iPhone that you may be unaware of. The update allows users to use their iPhone as a credit card reader, adding the ability for it to accept contactless payments with the chip on a credit card. Also known as the “Point of Sale System.” The new update is meant to replace Square, Clover, and all other point of sale platforms that make up a $1.7 million industry that Apple wants to become the leader of (para 1). https://apple.news/AGjLXhEpKQRKDEzEyDWnaKw

Did the Fed Make a Big Mistake? 

When The Fed gave out stimulus checks in 2020 and 2021, they expected to see increased growth for the service industry and small businesses. However, we quickly found out that stimulus checks did not feed our vast service industry that required assistance due to pandemic-driven shutdowns. Instead, the majority of consumers spent their money on products/services from the following large industry giants: 

  •  Apple (AAPL): 2020 – 80.75%, 2021, 33.82% (57.29% avg)
  •  Microsoft (MSFT):  2020 – 41.04% Return, 2021: 51.21% (Avg 46.13%)
  • Alphabet aka Google (GOOGL): 2020: 30.85%, 2021: 65.30% (Avg 48.08%)
  • Amazon (AMZN): 2020 (76.26%), 2021 (2.38%) (Avg 39.32%)
  • Tesla (TSLA): 2020 (743.44%) , 2021 (49.76%) (Avg 396.60%)
    *Tesla did not join this S&P 500 till Dec 2020. 
  • Meta, Formerly Facebook (FB): 2020 (33.09%), 2021 (23.13%) (Avg 28.11%)

The intention of the Standard and Poors (S&P 500) is to have a price that provides a quick look at the stock market and economy. However, these six companies make up a resounding 22% of the S&P 500. Additionally, they all grew at an average 2-year rate well above the S&P 500’s of 19.58% (16.26% in 2020, 26.89% in 2021). Therefore, the average of the other 78% of the market (494 companies, was much less overall than the S&P 500 2 year average return).

The following chart shows the weight of the top 10 stocks in the S&P 500 index. As shown, the weight of their earning contributions has increased to extreme levels. Therefore, the S&P 500 isn’t the balanced index it was once intended to be. Instead, it is led by a handful of wealthy companies trying to take one another down, and Apple is the leader at a whopping 7% due to their competitive efforts. 



Source: (2022, January 31). S&P 500 Index Valuations and Earnings. JP Morgan. Retrieved February 7, 2022, from https://am.jpmorgan.com/us/en/asset-management/liq/insights/market-insights/guide-to-the-markets/guide-to-the-markets-slides-us/equities/gtm-sandpindex/ 

What’s Next? 

According to Bartz (2022), on Thursday, February 3rd, members of the senate judiciary committee voted to approve a bill targeting Apple & Google's market control via their app stores, specifically targeting the “Apple Tax” referenced above. The bill would prohibit big app stores from requiring providers to use their payment system (para 2). If this bill passes, the big question is how the bill would affect mammoths like Apple and Google. https://www.reuters.com/technology/us-senate-panel-votes-approve-app-store-bill-aimed-apple-google-2022-02-03/ 

Let's compare this situation to Meta. According to Conger (2022), Meta recently declined by over 25% in only a few hours following its report of estimating a 10 billion dollars plus loss in revenue after Apple's app privacy changes (para 2). Could a passing of this bill potentially result in similar losses for Apple and Google? If so, this would heavily impact the S&P 500, NASDAQ Indexes, and the many mutual funds and ETFs that include Apple and/or Google. https://www.nytimes.com/2022/02/03/technology/apple-privacy-changes-meta.html 

Another possible route is that these mega-cap companies like Apple will continue to use their power, money, and vast collection of data to continue to engulf the competition. They could potentially grow revenue fast enough to offset any potential losses from acts of congress.

Writers Thoughts: 

China cracked down on tech companies in an unprecedented way. We saw slashed valuations in mega-cap companies like Alibaba & Tencent, not to mention numerous other major chinese tech firms. I believe we can look at China’s tech crack-down as a guide to what “can” happen here in the US if heavier anti-monopoly & internet regulation policies are passed by congress and put into place. However, within the political processes of a democracy, it would likely span over more time, and give the companies time to react & make necessary adjustments. Right now, many of the mega-cap companies are more willing to pay the fines instituted against them than follow the rules. Therefore, we can expect Congress to continue to attempt to pass legislation to solve this problem. It’s just a question of if they succeed and how much that affects the valuations of companies like Apple, Google, etc. 

This does not mean the stocks of these mega-caps will go down or up. Many factors come into play when evaluating a stock’s value. Determinations on the individual stocks mentioned in this article should be consulted with your financial advisor. What our analysis of Apple’s behavior and record market cap means is that we already are in a stock market where the top 10 companies make up nearly 30% of the market cap. Therefore, we have to question whether investors and/or regulators allow this to go to unprecedented levels of 40 or 50%. If not, will we begin to see the remaining 490 companies in the S&P 500 make up this ground and return to more normal levels? Whether you believe one or the other, it is crucial to review your exposures, even for Mutual Funds, ETF’s, or Passively in Index Funds. You must review your top holdings, to see your weightings of exposure to individual companies. Understanding that the S&P 500 is heavily weighted to the top 10 companies at this point in time, vs the past, is a critical factor to consider in your portfolio’s diversification. 



This article is meant to be general in nature and is not intended, and should not be construed as personal advice of any kind. Please consult your financial advisor prior to making financial decisions. Michael P. Davino, CFP® is a Financial Advisor with U-Vest Financial®, a separate entity from LPL Financial and can be reached at 850.300.7055. Securities and advisory services are offered through LPL Financial, a registered investment advisor, Member FINRA/ SIPC.

Works Cited: 

Vegvari, S. (2022, February 3). Apple's app tracking transparency will supposedly cost facebook $10 billion in 2022. iPhone in Canada Blog. Retrieved February 7, 2022, from https://www.iphoneincanada.ca/apple/apples-app-tracking-transparency-cost-facebook-10-billion/#:~:text=%E2%80%9CApple%20continues%20to%20take%20billions,apples%2Dto%20apples%20for%20us.

Espósito, F. (2022, January 24). Apple TV+ market share grows in the US while Netflix loses ground to its competitors. 9to5 Mac. Retrieved February 7, 2022, from 

https://9to5mac.com/2022/01/24/apple-tv-market-share-grows-in-the-us-while-netflix-loses-ground-to-its-competitors/ 

Bartz, D. (2022, February 3). Bill targeting Apple and Google approved by U.S. Senate panel. Reuters. Retrieved February 7, 2022, from https://www.reuters.com/technology/us-senate-panel-votes-approve-app-store-bill-aimed-apple-google-2022-02-03/ 

Conger, K (2022, February 4). A Change by Apple Is Tormenting Internet Companies, Especially Meta. The New York Times. Retrieved February 7, 2022, from https://www.nytimes.com/2022/02/03/technology/apple-privacy-changes-meta.html 

Share of smartphone users that use an Apple iPhone in the United States from 2014 to 2021. Statista,  Retrieved February 7, 2022, from https://www.statista.com/statistics/236550/percentage-of-us-population-that-own-a-iphone-smartphone/ 

Smith, C. (2022, January 5). Peloton Stock Falls to Fresh Low. Weakening Demand Has Analysts Concerned. Barron’s. Retrieved February 7, 2022, from https://www.barrons.com/articles/peloton-stock-price-slide-bike-demand-51641341541 

Potuck, M. (2022, April 20). Tile spooked by AirTags competition, calls on Congress to investigate potential antitrust concerns. 9to5mac. Retrieved February 7, 2022, from https://9to5mac.com/2021/04/20/tile-spooked-by-airtags-competition/ 

Aten, J. (2022, February 11). Apple Just Quietly Introduced a Feature to Your iPhone That Is Going to Upend This $1.7 Trillion Industry. Apple News. Retrieved February 7, 2022, from https://apple.news/AGjLXhEpKQRKDEzEyDWnaKw 

Tung, L. (2021, September 6). Apple Watch continues to dominate. Can any other brand catch up? https://www.zdnet.com/article/apple-watch-continues-to-dominate-can-any-other-brand-catch-up/#:~:text=But%20looking%20at%20smartwatches%20alone,leaving%20it%20with%207.1%25%20share