On 30 June 2023 Apple became the first listed company to end a trading session with a market value above $3 trillion. What the figure measures and what it shows about the market.
Apple closed on Friday 30 June 2023 at $193.97 a share, up 2.3% on the day before, and with that its market capitalisation passed $3 trillion at the close. It is the first time a listed company has ended a session above that figure. Apple had already been the first US company to reach a trillion dollars, in August 2018, and two trillion, in August 2020; both milestones were explained in Perspectives, in the notes “Apple is worth a trillion dollars” (2018) and “Apple is worth two trillion dollars” (2020).
What happened
On 3 January 2022 the company had briefly passed $3 trillion during the session but closed below it. This time the value held to the end, which is what counts when talking about a record close. The path was not straight: early in 2023 its market value fell below $2 trillion, something that had not happened since 2021, and in the first half the shares rose about 46%.
Apple was not the only one to rise. Four other US companies were worth more than a trillion dollars: Alphabet, Microsoft, Amazon and Nvidia. Nvidia, up 181% on the year, and Meta, up 137%, led the S&P 500’s gains, according to TechCrunch.
What a market capitalisation measures
Market capitalisation is the share price multiplied by the number of shares. It is what the market pays today for a company; it is not cash the company holds, nor does it measure how much it earns. Round figures attract attention, but what matters is the arithmetic: when the price rises 2.3% in a day, as on 30 June, the market value rises in the same proportion without anything changing in the business.
A comparison with its results illustrates this. In the latest quarter reported, the second of its 2023 fiscal year, which ended on 1 April and was announced on 4 May, Apple had revenue of $94.8 billion, 3% less than a year earlier, with earnings per share of $1.52, unchanged from the year before, and record services revenue. The share price rose sharply during the year without that earnings per share growing in the quarter, which shows that market capitalisation mostly reflects expectations.
In an index weighted by market capitalisation, such as the S&P 500, the more a company rises, the more it weighs in the index. Anyone holding an index fund therefore holds, without intending to, more of the companies that have risen most.
What to bear in mind
The rise came with the Federal Reserve’s rates at 5% to 5.25%, the range it left unchanged on 14 June after a series of increases, and it says nothing about what will happen next. A record market value speaks of expectations: of what investors pay today for the profits they expect, not of guaranteed profits.
For anyone with wealth invested in funds or index-linked portfolios, it is useful to know how much the largest companies weigh in them, because the result will depend more and more on a few names. Funds’ periodic reports detail their main holdings. Ask your adviser how it fits your case.
The trillion of 2018 and the two of 2020 were milestones; the three of 2023 are, above all, a reminder of how concentrated the market is today.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
