Apple Nears Unprecedented $4 Trillion Valuation on AI Bet

Apple is on the verge of achieving an historic $4 trillion market valuation, driven by investor enthusiasm for the company's progress in artificial intelligence, as reported by Reuters.

The technology giant has surged ahead of Nvidia and Microsoft in the race to this monumental milestone, fueled by a 16% share price jump since early November. This rally reflects "investor enthusiasm for artificial intelligence and an expectation that it will result in a supercycle of iPhone upgrades," says Tom Forte, an analyst at Maxim Group, to Reuters.

Apple's current valuation of approximately $3.85 trillion already dwarfs the combined value of the German and Swiss stock markets. This incredible growth trajectory, fueled by the so-called iPhone supercycles, has previously seen Apple become the first US company to achieve trillion-dollar valuations.

However, Apple's AI strategy has faced criticism in recent years, with Microsoft, Alphabet, Amazon, and Meta Platforms taking the lead in this burgeoning field.

The integration of OpenAI's ChatGPT into Apple devices, following June's announcement to integrate generative AI technology across its app suite, is expected to be a key driver of future growth. However, the company's forecast of "low- to mid-single digits" revenue growth for the current fiscal first quarter, a period encompassing the holiday shopping season, has raised concerns about the iPhone 16 series' momentum.

Analysts, however, remain optimistic about the long-term prospects of the iPhone, driven by the rollout of enhanced AI features. "Although near-term iPhone demand is still muted...it is a function of limited Apple Intelligence features and geographic availability, and as both broaden, it will help to drive an improvement in iPhone demand," says Morgan Stanley analyst Erik Woodring.

Apple's recent share surge has pushed its price-to-earnings ratio to a near three-year high of 33.5, exceeding those of Microsoft and Nvidia. However, Warren Buffett's Berkshire Hathaway has been shedding its Apple shares this year, reflecting a broader retreat from equities due to concerns over stretched valuations.

Despite the positive outlook, Apple faces potential headwinds. The threat of retaliatory tariffs from the incoming US administration on goods from China remains a concern, although analysts believe Apple's key products may be exempt. Additionally, while the Federal Reserve's pivot towards a slower pace of rate cuts next year is generally seen as positive for the stock market, it could impact cyclical sectors.

However, the overall sentiment remains bullish, with analysts pointing to Apple's dominance in the tech sector and its AI investments as key drivers of continued growth.