iSad: Apple overtaken as world’s most valuable company

May 22, 2022

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2 min read

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What's going on here?

Following a volatile year for tech stocks, Apple has been overtaken by the Saudi Arabian oil and gas producer Aramco as the world’s most valuable company.

What does this mean?

The year started so well for Apple. Turbocharged by the heightened demand for new technology in the pandemic, Apple saw its value rise by $1tn in less than 16 months. This culminated in a $3tn market capitalisation on January 3 2022, making it the first company to reach this milestone. Since this unprecedented high, however, Apple has seen its share price plummet by almost 20%, with Aramco reclaiming its position as the world’s most valuable company.

Unlike Apple, which has suffered from the broader tech sell-off as investors have sought to hedge against inflation, Aramco has benefited from booming oil demand. Oil prices surged to a 14-year high in March and the volatile situation in Ukraine continues to exacerbate global oil markets. As such, Aramco has seen its shares soar 28% since the start of the year.

What's the big picture effect?

The sell-off in Apple’s shares reflects the broader “tech wreck” within US stock markets, as investors have shifted from high-growth areas like tech into “safe-haven” investments in defensive sectors, energy, and commodities (to see our article on this, click here). The tech-dominated Nasdaq composite is down 25% since the beginning of 2022, whilst the S&P 500 (the index fund tracking 500 leading publicly-traded US companies) is having its worst start to a year since 1939. As the Federal Reserve’s accommodative monetary policy ends and high inflation and high interest rates dominate economies globally, investors are abandoning the high-growth tech companies that provided huge returns during the pandemic. Persistent inflation erodes the buying power of money in the future. As tech companies rely on future growth and revenue, investors seek companies that can deliver value and returns now.

Apple is also the victim of ongoing supply chain issues which have been exacerbated by Covid-19 outbreaks in China. Top executives warned that the iPhone manufacturer could lose up to $8bn in revenue during this financial quarter. Half of its 200 top suppliers are in or around areas undergoing strict Covid-19 lockdowns in Shanghai. Failures to fulfil orders or serve consumer demand for new products could drive Apple’s share price even further in the coming months.

However, all is not lost for the company. Three consecutive quarters of record profits and continuously high sales of iPhones and its wearable technology have seen its share price fair far better than its rivals. Stock market volatility and Aramco’s soaring oil profits pose challenges but do not be surprised if Apple reclaims its “most valuable” spot soon.

Report written by Jude Folorunso

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