Tim Cook is stepping down as chief executive of Apple and he leaves behind a daunting ledger. Apple was already a giant when Cook took over from Steve Jobs in 2011, but today it is something closer to a sovereign state, with a market value exceeding $4 trillion.
Revenues have more than quadrupled, profits have done even better and the stock – helped further by the biggest share buyback programme in history – has risen almost 20-fold, trouncing the S&P 500 in the process.
It has been, as the New York Times put it, “one of the most consequential” chief executive runs in corporate history.
His successor, hardware chief John Ternus, inherits not just that record but the anxieties that come with it. Apple’s product machine still hums along nicely, but critics note the absence of anything transformative in recent years while investors increasingly want clarity on its artificial intelligence strategy.
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Some remain upbeat. Deepwater’s Gene Munster, a high-profile Apple bull, argues that if Ternus can bring in AI-first talent and deliver new products, the company’s valuation “can only go up”. Ternus “has an opportunity to supercharge Apple’s multiple by changing the narrative, which is the biggest opportunity in big tech”, says Munster.
That looks like a decidedly optimistic reading. It’s not that Ternus is the wrong man – the share price didn’t move on the news, suggesting he is seen as a safe pair of hands and a natural insider choice – but because Apple’s valuation is already pretty stretched. It trades on 32 times estimated earnings, compared with 13 in 2011.
A similar re-rating is evident on revenue, with the price-to-sales multiple moving from roughly four in 2011 to 9.5 today.
Excluding the famously speculative Tesla, Apple also trades at a premium to the rest of the magnificent seven stocks.
Valuations cannot expand indefinitely. Indeed, for all the applause afforded to Cook, this valuation ceiling has been evident for some time. Bespoke Investment notes Apple’s long period of sustained outperformance has given way to a largely sideways pattern versus the S&P 500 since September 2020.
Ternus may yet prove an able steward, but the easier gains – of scale, buy-backs and re-rating – look largely spent. The next chapter may depend less on efficiency and financial engineering than on whether Apple can once again surprise.
