Amazon takes top spot as most valued firm, but what happened to Apple?

Online retail giant Amazon Inc (NASDAQ:AMZN) has officially eclipsed Microsoft (NASDAQ:MSFT) as the most valuable listed company, with a market cap of US$797bn at the close of US markets on Monday.

The valuation comes as a slap in the face to rival tech giant Apple Inc (NASDAQ:AAPL) , which less than six months ago became the first company to be valued at over US$1trn, with the group’s shares reaching an all-time high of US$232 each in early October.

READ: Apple shares plunge after tech giant warns 1Q revenue will be lower than expected

However, a series of negative headlines including iPhone sales misses in the fourth quarter and a shock first quarter earnings warning in January have sent the shares plunging around 36% from the all-time high to US$148 as of 7 January.

The slump has many questioning whether the market’s confidence in the firm was misplaced, and also whether it will be able to recover to a level similar to the highs seen in late summer.

Analysts at UBS do not seem confident of Apple reaching its record peak again, at least in the short term, after cutting their target price to US$180 from US$210 last week.

The Swiss bank is now forecasting a 12% decline in revenues for the iPhone in 2019 financial year, although given the Apple stopped reporting iPhone sales last year it is difficult to estimate the actual drop.

“Macro uncertainties are impacting demand in emerging markets and developed markets are seeing elongating replacement cycle due to lower carrier subsidies and battery replacements” said analysts.

A big drag on Apple is its Chinese market, which chief executive Tim Cook blamed almost entirely for the downward revision in earnings in his letter to investors, saying the market accounted for “over 100 percent of our year-over-year worldwide revenue decline”.

There is also the overhanging trade picture, with potential for domestic Chinese brands such as Huawei to compete with Apple more effectively if the US-China trade war adds more pressure.

While it might be easy to blame China for all of Apple’s woes, there may be more wide-ranging trends at work.

Pushback against pricey iPhones?

Nicholas Hyett, equity analyst at Hargreaves Lansdown, says that Apple’s slump may also be part of a wider consumer pushback against premium technology products.

“The consumer is perhaps less price insensitive to top tech brands than people thought” Hyett says, citing the recent example of electric car firm Tesla Inc (NASDAQ:TSLA) announcing a US$2,000 price cut across all of its vehicle classes.

“What we’re seeing is that as the gap between the very top tech companies and the rest narrows, the ability of those companies to command a premium is shrinking”.

An overheating technology market could also have impacted Apple’s fortunes, with shares in the FAANG group of companies having fallen significantly since last summer.

Still a trillion dollar company

However, Hyett still sees Apple as returning to its trillion dollar valuation in the future.

“What you’ve still got in Apple is a fantastic brand, and they still have US$100bn of cash on the balance sheet, that’s an awful lot of potential innovation spend”.

“Over the long term, we might well see Apple as a trillion dollar company again” Hyett says, although in the short term a US$200+ stock price seems unlikely in the next year given ongoing global trade problems.

Hyett adds that the firm’s services business is also growing quickly, an assessment echoed by UBS’s analysts who said the firm was seeing “strong growth” in its services segment, forecasting a rate of 20% adding that the company could go further through its ability to “increase services penetration, shift to [a] favourable mix, and potentially new service offerings including bundles”.

The bank also said innovation areas that could be targeted by the firm could include augmented/virtual reality, video streaming, healthcare, and autonomous vehicles.

Story by ProactiveInvestors