Nasdaq 100 analysis: Can Apple earn a $3 trillion valuation?

Apple stock hits all-time highs

Apple shares are up 1.5% today and have hit fresh all-time highs of $183.61, surpassing the intraday high of $182.94 and the opening high of $182.63 set back on January 4, 2022.

Can Apple’s valuation hit $3 trillion?

The rally is cementing its position as the world’s most valuable publicly-listed company with a market cap of just under $2.9 trillion. The iPhone maker briefly earnt a $3 trillion valuation when it last hit highs in 2022 but failed to close at a high enough level to keep a hold of it.

(Source: Companiesmarketcap.com)

Why is Apple stock rising?

The biggest names in tech have not been immune to the challenging market conditions and have seen sales and earnings come under pressure as inflation, rising interests and an uncertain outlook continue to plague the global economy. However, they have continued to drive markets higher after emerging as a form of safe haven for equity investors because they are attractive in both a risk-on and risk-off environment.

In Apple’s case, it offers durable revenues, reliable earnings, healthy cashflow, a wealthy bank balance, consistent shareholder returns, and strong growth prospects. As a result, the stock has significantly outperformed the market after soaring almost 47% since the start of the year.

Apple has managed to keep impressing the markets, having beaten earnings expectations in seven out of the last eight quarters. The surprise lift in iPhone sales in the last quarter has shown resilient demand for its devices from its loyal customer base and that its push into emerging markets is allowing it to find new growth as western markets mature. Services, which boasts much higher margins and therefore profits, continues to grow unabated as it taps into the two billion Apple devices being used worldwide. Investors have also got excited about the launch of its mixed-reality headset - the first new product in over a decade - and what Apple plans to do amid the eruption in artificial intelligence. The fact dividends and buybacks remain as reliable as ever, supported by its huge cash balance, has also helped too.

Is Apple stock overvalued?

The rally in Apple shares, however, has also inflated the company’s valuation. Apple currently trades at a blended-forward price-to-earnings ratio of 28.5x, far above the 20.8x of the Nasdaq 100, which may raise questions about whether it is overvalued, and whether more attractive opportunities lie elsewhere.

Brokers have raised their target price after continuing to be impressed by Apple this year but they also believe the recent rally has pushed the stock to its limit considering they have an average target price of $181.69, just below where it sits today.

Where next for AAPL stock?

Apple shares have comfortably surpassed the all-time high we saw early last year and has now outpaced the supportive trendline that can be traced back to the start of 2023, but it will need to close above $182.63 to book a new closing high and install confidence it can climb higher.

We could see some pullback. The RSI is now deep in overbought territory and we have seen trading volumes fall for three consecutive sessions to show appetite may be starting to wane at these levels. The stock risks falling back toward $179/$180 if it loses steam and the rally reverses. A slip below here would see it slide toward the peak we saw in August 2022 at $174.50.

Nasdaq 100 analysis: Where next for the index?

Apple, as one of the largest components of the Nasdaq 100, is providing some support to the index today. The Nasdaq 100 is trading at its highest level in 14 months and remain on course to keep climbing toward 15,200 if it can keep up the momentum.

However, it too could find it more difficult to keep the rally going as the RSI is also deep in overbought territory. We can see by the upper wicks from both Friday and today that appetite is being tested above around 14,550, so a sustained move above here is needed. Any pullback could see the index slip back toward 14,270 in the near-term.