Does Apple's $600bn market value herald a dotcom crash?

Apr 11, 2012

After Apple's share price soars, some analysts fear the technology giant is riding a technology boom

Getty Images

THE MARKET value of the California computer giant Apple reached $600bn yesterday, with its share price tipping $644 – but is it good news or bad?
Some analysts fear a new technology bubble like the one that developed in the late 1990s and led to the dotcom crash of March 2000 when the Nasdaq index fell ten per cent in ten days.

Apple, which is set to announce a 50 per cent hike in profits to $9.2bn for the first three months of 2012, could even become the world's first trillion dollar company, some Wall Street watchers predict.

But others believe the current tech boom – typified by this week's news of Facebook paying $1bn for Instagram -  will inevitably lead to a crash.

Apple's rising stock price has "options traders acting like it's 1999 — and that isn't necessarily a good thing," writes Kaitlyn Kiernan for the Wall Street Journal blog MarketBeat. "The volatile action in Apple options is reminding traders of the time when the technology bubble neared its peak."

Apple's record market value has only been matched once before, when Microsoft broke the $600bn barrier at the height of the dotcom bubble with a value of $619bn. After the boom, which had begun in 1995, the 2000 bust saw Microsoft's share price fall from $119 to $90 that April.

Options strategist William Lefkowitz at V Finance Investments speculates that "the premiums are back to the heyday bubble days". He told MarketBeat that the "momentum" of Apple's growth "gets people excited and they jump on the bandwagon".

Not all analysts see similarities between the boom and bust of the millennium and Apple's rapid growth today.
Some say that the 2000 crash came because investors were overlooking the true value of computer firms, based on price-to-earnings ratios, and focusing instead on the profits they believed they might yield.  

As Chris Versace of PowerTrend Investor believes, although surges in share prices "trigger a yellow flag", Apple's $600bn valuation is far more realistic.

"Bubbles occur when valuations get very frothy... When we look at Apple's P/E multiples [price to earnings ratio], that's not the case," he said.

Sign up for our daily newsletter

Disqus - noscript

This article is scaremongering.  Apple is still cheap at $600.  Its true value is over $1,000 and that is where it is heading.

The p/e ratio currently stands at 18.  A high growth tech company like Apple should have a p/e ratio of at least 30.  The stock has much higher to rise.

If there is a dangerously overvalued company out there it is Amazon which is currently trading with a p/e ratio of 150. Now that is a bubble!