By E.S. Browning Steven Russolillo and Jessica E. Vascellaro
Apple Inc.
AAPL -0.20 surpassed
Microsoft Corp.
MSFT 0.55 Monday as the largest U.S. company ever measured by stock-market value.
Apple hit the new milestone$623.52 billionat a time when its influence on the economy on the stock market and on popular culture rivals that of some of the most powerful companies in U.S. history:
General Motors Co.
GM 0.78 whose Corvette and Impala typified a confident postwar manufacturing giant; Microsoft whose technology heralded the arrival of the personal computer and the early Internet age; and
International Business Machines Corp.
IBM -0.09 whose buttoned-down rigor inspired rivals to reach for greatness.
It is one of those iconic companies says Richard Sylla professor of financial history at New York Universitys Stern School of Business. When I think about these companies their products were used by all kinds of people and their leaders were considered geniuses.
Apples stock-market valuation at Mondays close of business was greater in nominal terms although not in inflation-adjusted terms than Microsofts closing high of $616.34 billion in December 1999. It left Apples value more than $200 billion ahead of that of its nearest U.S. rival Exxon Mobil which stood at $405.97 billion according to FactSet. That gap is almost as large as the market value of IBM.
Apple surpassed Exxon a year ago as the current leader in market value but was still well short of Microsofts record. In the months that followed it quickly lengthened its lead over Exxon like a corporate Usain Bolt.
Apples stock-market surge has come despite the death in October of its co-founder and creative genius Steve Jobs despite investor disappointment about its most recent quarterly sales and profit gains and despite the companys failure to introduce a major new product line since the iPad announced in early 2010.
Still Apple remains the company whose approach to technology and design has become a standard for others a development driven home by Apples lawsuits accusing one of its biggest rivals
Samsung Electronics Co.
005930.SE -0.08 of stealing its designs and features. Samsung has denied that and made similar accusations against Apple.
The big question on the minds of investors and technology mavens alike is how long Apple can keep it up. Its challenge will be to continue to attract customers with expected future products including an iPhone with a bigger screen and a smaller iPad. It also is seeking to shake up the television business with a device that can carry live television according to people familiar with the matter although it remains to be seen whether cable operators will bite.
Apples challenge is the same one faced by Microsoft GM IBM and other once-dominant companies. The bigger it gets in both sales and bureaucracy the harder it is to keep increasing profits and revenues at the same speed and to continue developing products and maintain a culture that inspires customers and rival firms.
Capitalism is creative destruction and as we speak someone probably is plotting a product that will steal Apples thunder says NYUs Mr. Sylla. Apple will sell a lot of products but I suspect that their reign as the most valuable company in the world wont last for more than another few years. He added: These products can be imitated and they will be imitated.
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The nature of business is that small companies come along with new approaches that permit them to grow faster and supplant larger ones. Just as Apple overtook Microsoft someone inevitably will replace Apple Mr. Sylla says. It is a challenge that not only caught up with Apples predecessors but also faces other newly enormous market leaders such as
Google Inc.
GOOG -0.31 and Amazon.com Inc.
Even trees dont grow to the sky says Keith Springer president of Springer Financial Advisors. Theres no product in the history of mankind where the company continues to do better and better. At some point the valuation gets too rich. But at this point theyre still innovating and producing. As long as theyre innovating I will keep buying.
Microsofts market value topped out just months before the technology bubble burst in March 2000. The software giants shares lost more than half of their value within a year and have never since come close to reaching similar heights. On Monday the stock closed at $30.74 still only a little more than half its peak level.
Apple shares have surged 64 this year. An Apple spokesman declined to comment on the share price.
Investors last year worried about the companys ability to innovate under new leadership. Those worries have been cast aside for much of this year under Tim Cook the companys chief executive.
Strong demand for iPhones and iPads have driven Apple to sales and profit records this year.
Apple shares have attracted a cultlike following among traders and investors of all stripes. Investors large and small have piled into the stock. At least two analysts have predicted this year that Apple would top $1000 a share a 50 gain from its $665.15 close Monday. The stock is up 16 since July 25.
To surpass Microsofts 1999 market value after adjusting for inflation Apple shares would need to exceed $900 according to Howard Silverblatt senior index analyst at S&P Indices.
We still like it and think theres a good probability that this will become the U.S.s first trillion-dollar company said St. Denis Villere III a partner at Villere & Co. which has about $1.7 billion in assets under management.
PetroChina Co.
601857.SH 0.22 in 2007 by some measures became the first company in the world to have a market value of $1 trillion albeit very briefly and only based on its valuation on the Shanghai Stock Exchange.
Apple isnt the only company whose share price has hit new heights as the stock market has drifted higher this summer. Shares of
Wal-Mart Stores Inc.
WMT -0.01 hit all-time highs last month around $75 after more than a decade of trading around $50. IBM hit record highs in April above $200 and still is trading near those levels.
The Dow Jones Industrial Average at 13271.64 is near its highest level since December 2007.
Toni Sacconaghi of Bernstein Research said in a research note Monday that Apple shares have shown more pronounced increases relative to the S&P 500 ahead of the past two iPhone announcements. Consumers have put off purchasing devices in anticipation of the new phones which start generating buzz months before their release. The trend puts pressure on Apple to meet high expectations and to ramp up the rollouts to international markets quickly.
Another positive for the stock has been Apples decision to issue a quarterly dividend for the first time in nearly two decades. The $2.65 per share payout issued Aug. 16 placated investors who had been grumbling about the company failing to dip into its cash hoardwhich totaled more than $117 billion as of the end of Junefor shareholders.
Still the recent rally has investors on guard in the event that the companys growth rates disappoint analysts.
As with any technology investment and you can go back through history its very hard for any company to continue to stay on top Mr. Villere said. Technology is one sector you have to watch very carefully. But they have more than enough going for them at Apple that you dont want to get off the train just yet.
Write to E.S. Browning at
jim.browning@wsj.com Steven Russolillo at
steven.russolillo@wsj.com and Jessica E. Vascellaro at
jessica.vascellaro@wsj.com
