The one reason Apple will be the first trillion dollar market cap company

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Apple is the dream company we always wished for when we were children. The messiah of companies that we never thought would come to Earth in our lifetimes. When I was a kid the only thing I wanted in life was an Apple II+ . When I finally got one (my dad took one from his work and gave it to me for about six months) I did everything a young boy does with his computer. I programmed (in BASIC) the computer to type my name over and over again. I then went to the local computer store and shoplifted Ultima III. My friends and I then copied each others games so we had a whole set of games to play with. I then skipped school incessantly in order to play games all day, my friends and all calling each other throughout the day (we all skipped school every day) in order to share the latest secrets we found while hacking our way through Castle Wolfenstein.

15 years later Apple was on the verge of bankruptcy. The company I worked for (HBO) and Philip Morris, the cigarette company, were the only two companies in the city that I knew of that used primarily Macintoshes (except for the legal department, which used all PCs and every document was redlined, outlined, greenlit, in WordPerfect 7.1.1). Gil Amelio, the CEO of the company for about 3 seconds came to visit HBO. We were all so impressed with him. The CEO of Apple! How much cooler could you get? At the time they were about thisclose from bankruptcy or being, at the very least, hopelessly inconsequential.

Five years before that was the Apple Newton. The head of Carnegie Mellon’s Art school said to me, “this will change the world.” And five years before that, I wrote my first term paper on this amazing little device, the Mac 512k. I also saw Steve Jobs when he visited Cornell’s Computer Science Department to get them to buy some NEXT machines. They were beautiful. Maybe still the most beautiful desktop machines  I’ve ever seem. Black cubes, super powerful. They were magic to program and experiment with. I wrote a chess program on them. Everyone surrounded Steve Jobs just to see what he looked like. I was jealous. He was young, rich, and had so much charisma you couldn’t even see past the light that shined out of him.

Now, I’m writing this one my last Windows-based laptop ever. I know whats going to happen. Already in my house there’s one Macbook Air. There are two itouches, one iphone, 2 ipads, and 4 or 5 ipods. I’ve got 10 authorized computers already for itunes across two accounts.  I download apps at least once per day, much more if you add in songs and tv shows and movies from the itunes store. Within two weeks, before I leave on a trip for India, I will buy a Macbook Air 13” to travel with and I know I will never go back to the HP laptops I’ve been using for almost the past 10 years.

Now lets look at the basic numbers.

Read the rest over at CNBC.com

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  • Bob

    I know where you are coming from except I had the Apple //c and I didn’t skip school as much. When I went into the working world it was all Windows, all the time. Apple came back into my life with the iPod Nano. Now we have 2 Nanos, 3 iPhones, the new Apple TV and an iPad. We will also get the next iPad since my 1 year old hogs the one we have now. Years ago Bill Gates predicted that every home will someday have a computer. I think Steve Jobs can get every home to have 5 or 6 computers.

  • Steven Goff

    I am compelled to agree with this. Not even Anti Trust can stop Apple. It is whats known as for > The Greater Good!

    I firmly believe that when Steve Jobs went to the White House for that couple hour private meeting w/ President Obama. That they discussed to possibility of equipping every human with a device of some sorts. The orderly function of the human species and it’s societies depend on this. This will also be the reason we will soon have FREE internet access for all. It is a necessity for e commerce for the lower end clientele/market to participate/live life.

    I would bet CASH that this above was discussed in some form or another in that closed door one on one meeting between Mr. Jobs and President Obama.

  • Steven Goff

    Tuesday at 4:23pm
    OK Closing Bell CNBC…Them two guys on talking about what Apple and jobs should BUY going forward > *Apple (AAPL) should buy Visa Inc (V) It would be a very smart move on Apples part. Below I’m going to write ya a thesis/hypothesis as to why I think so. Steve Jobs needs to start making smart acquisitions that will replace a …plateau in research… & development that is comming. And especially a planned plateau in it’s release into society. See below

    Apple Inc (AAPL) should buy Visa inc (V). It would be a very smart move on Apples part. And below I am going to write ya a thesis/hypothesis as to why I think so. Steve Jobs/APPL
    need to start making smart acquisitions that will replace a pl……ateau in research and development that is comming. And especially a planned plateau in it’s release into society. And margin issues to come going forward. >> The same reason they should also buy Sandisk (SNDK). Take that out of margin equation as well.

    This whole thesis centers around the transition to a debit card/debit device society….and taking CASH/paper currency out of American and World societies circulation/use indefinitely. All transactions should be done with a debit card or ID Card or via your “HAND HELD DEVICE”. Thus generating a digital paper trail per se…to have a tax FLAT/Consumption/Usage/a Fee/whatever…
    levied on the goods or services accordingly and automatically. One that is not hindered by political boundaries….ie the different states and countries of the world. Not to mention the micro managing and real time demand statics/data that could come from this move.
    (I wrote a peice about doing away w/ The national census on the same basis)…This will in essence be the Coup de Grace’ of the CASH/Underground economy. These are the individuals and businesses that operate and live their lives on a cash
    basis…to avoid paying any taxes at all. By taking cash out of society and going to a debit card paying culture
    {{{would stuff the IRS coffers like we
    have never seen or thought possible}}} Of course at first…we will see the rampant return of the barter system that the pimps, drug dealers, and prostitutes will use to side step. And so will some of the remaining mom and pop shops left. Also online barter sites would sprout up. That’s why (the real reason) we hear talk of legislation mandating getting National ID Cards…this one is going to be a little different than the conventional ID card with photo and address. This is going to do your security status, finances, Medical, DNA sample….who knows!
    Maybe even RFDI chips for tracking. Doesn’t Canada have an almost 70% cashless society?….My exact number could be off a tad.
    Take cash as we know it out of the equation….and the possibilities are
    endless with it’s the bi-products. And who knows? Someday the Govt might put a stipend($$$) on your card once a month…and make you spend it…or loose it in a timely manner…thus to prevent hoarding and feed our consumer based world economy consumption beast. That’s not out of the realm of possibility…when it comes to maintaining…and for sure growing a consumer based world economy. And to Apple….this is like Ebay owning Paypal

    Asked by π/ steve goff 2 month ago – 1 answers – 191 views

  • Steven Goff

    The #1 thing that could make Apple the first $1 Trillion Buck market cap company ?
    It is a USA based and priced in USA Dollar company….bottom line

    And like all USA assets (hard,soft,paper) pegged/priced in USD. They are subject to inflationary pressure on a Forex basis. Apple has to go up. Just to protect itself from a possible hostile or not strong currency regime.

  • Beltway Greg

    You probably only need a couple of stocks for the future. Yum Foods, Citigroup, Waste Management, and Apple. Call me in 2015.

  • Steven Goff

    Side note : RCA Corporation, founded as the Radio Corporation of America, was an electronics company in existence from 1919 to about mid 1980’s

    They said the same thing back then in the market when RCA was see as going to conquer the WORLD and the future at the time. If memory serves me I think the all time high for RCA’s stock was about $300 or so.

    Ask a kid today who RCA is and they look at ya like there crazy. But some do recognize the Dog and Dictaphone logo/trademark.

    Times change…so do people…so do products that get us through life!

    http://upload.wikimedia.org/wikipedia/commons/d/d6/Revised_RCA_emblem_from_Big_Spring%2C_TX%2C_Museum.jpg

  • Rohit

    How can you slap a 20x multiple on it? That’s a huge jump relative to its current levels. Also 200 million iPads would require a huge percentage of the civilized world to own a tablet (a secondary device presently). I think apple can be the first trillion dollar company but it will require a lot more innovation. They could do Mobile payments as one commenter suggested or maybe buy a carrier and pursue building out their own network.

  • steve

    I thought Cisco was going to be the first back in 2000 … oh wait, never mind.

  • Brad

    James,
    Have you posted an article recapping your 2010 picks. Our you posting any pick for 2011? Thanks for your insight. Love the site.

  • Charlie

    Looks like you’re enjoying your own reality distortion field, Mr. Altucher. You’ve got some very convinced readers.

    Even if you’re right about Apple, you’ve offered absolutely no concrete rationale for your arriving at your conclusion, other than a few paragraphs that boil down to “I love Apple.”

    I wonder how many people have gone out and made a big bet on Apple stock because they think you’re smart. Hopefully not many… if I were in your shoes, I don’t know if I could sleep at night knowing that people might actually lose money acting on my speculations.

  • Charlie

    I apologize, James, I should concede that you do have a rationale for betting on a trillion dollar market cap, but it’s predicated on extremely dangerous assumptions, namely that Apple might sell around 200 million iPads in 2013, at today’s margins. There’s simply nothing sound about hanging an entire investment thesis on such a wild guess.

    But maybe you’re a psychic… in which case, I bow to your word.

    • James Altucher

      Charlie, how about this argument:
      – its at a $300bb market cap right now
      – it trades for 14x next year’s analyst estimates. And thats without backing out the cash, etc.
      – lets say they just meet next year’s analyst estimates (Apple typically beats analyst estimates). And lets say next year they trade for 40x earnings (like approximately half the S&P 500 does).

      Then its a trillion dollar market cap without any big effort.

      The thing about this article is that its an easy prediction. We’re not even one order of magnitude away. Its going to happen.

  • Charlie

    “And let’s say they trade for 40x earnings (like approximately half the S&P 500 does).”

    Sure, let’s say that. That’ll make it a reality…

    So, what you’re saying is “it could trade at 40x estimates because other companies trade at 40x estimates.”

    Again, this prediction has no solid fundamental foundation. It’s speculation of the worst kind.

    Let’s say you get constipated tomorrow, because 20% of the population gets constipated…

  • James Altucher

    Well, its not the same. Apple is trading at 14x next year’s analyst estimates. What P/E should it trade at if they have 40% growth. Its not a stretch now from $300bb to $1tt.

    But even without this simplistic argument, my metrics above make it more likely we see $1tt than $200bb for AAPL.

    • Charlie

      “What P/E should it trade at if they have 40% growth.”

      “Should” is the key word there. You seem to believe that there’s a correct P/E ratio for a company depending on their upcoming year’s estimates. The problem with that thinking is that, (a) they are estimates, (b) we are talking about a technology company, which is particularly challenging when it comes to predicting anything, and (c) whatever P/E ratio you think might be deserved, the market can easily stay “incorrect” for far longer than you can stay solvent.

      So, next year’s estimates are far from being in the bag, as you seem to think, and even if they do end up being correct, there’s absolutely no saying that next year won’t be followed by several years of declining market share and dwindling profits.

      I am not making any predictions, let me be clear… What I am saying is that any prediction on Apple’s future profitability is highly speculative (you cannot bet the farm on it) and, thus, any prediction of future market value that’s based on future profitability is also highly speculative.

      I just don’t see any way you could argue that Apple will inevitably dominate the market for several years to come. Would you have made the same prediction back in the ’80s when Apple seemed to have the entire personal computer market in their grips, only to be destroyed by Microsoft?

  • James Altucher

    Sure< I agree with all of that. But, here’s why I think they will dominate: A) they already dominate B) everyone is already lining up for ipad 2s C) everyone is already lining up for a VZ iphone4 (and btw, the iphone 4 is better than the nexus S hands down) D) macs take market share every year. So why wouldn’t that continue? Not trying to make a prophecy. Just betting on the trend. So lets say its a 20x P/E. Ok, $600bb. But thats thisclose to $1 trillion in a heated market. Or, if growth continues one more year for Apple (why not), then we’re there anyway at 20x.

    • Charlie

      Yeah, I don’t think either of us are confused about one another’s viewpoints. You’re willing to bet on the trend and I’m not. To be clear, I’m also not willing to bet against the trend. In other words, I’m not willing to bet anything.

      Keep in mind, this is all in the context of investing, that is, investing an amount of money that would be significant to my or your financial well-being. If we were talking about a friendly $5 wager, I might be willing to take the other side of that bet.

      When it comes to investing, I prefer to bet on much surer things than Apple hitting $1 trillion.

  • James Altucher

    All I’m saying is I think Apple will be first to hit a trillion. But I actually think there are better bets out there that i’ve outlined in other articles on Seeking Alpha or WSJ.com.

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  • http://stocksonwallstreet.net/ jameshartje

    That’s a very bold prediction James.

  • Tom

    James, I am a big admirer of yours and I do think AAPL is a great stock, however I dont think AAPL will get to a trillion dollar market cap. World GDP is about $60 billion. Does AAPL deserve a market cap of about 1.5% of the world GDP? Or, to put it another way, will the world be spending 1.5% of their income on AAPL products? – I think that is highly unlikely. Eventually, the larger the company gets, the maximum growth rate a company can have converges to the growth of the world economy, which is maybe 4-5%. The next few years may be great for AAPL, but at some point the growth rate HAS to slow because there is just not enought money/business activity in the world to support this growth rate in the future. You cant put a p/e of 20 on company whose growth will be slowing to 4-5% in the coming years. I remember iin 1999 that everyone was saying Cisco Systems was going to be the first $1 trillion company, and look what happened there.

  • Tom

    James, I am a big admirer of yours and I do think AAPL is a great stock, however I dont think AAPL will get to a trillion dollar market cap. World GDP is about $60 billion. Does AAPL deserve a market cap of about 1.5% of the world GDP? Or, to put it another way, will the world be spending 1.5% of their income on AAPL products? – I think that is highly unlikely. Eventually, the larger the company gets, the maximum growth rate a company can have converges to the growth of the world economy, which is maybe 4-5%. The next few years may be great for AAPL, but at some point the growth rate HAS to slow because there is just not enought money/business activity in the world to support this growth rate in the future. You cant put a p/e of 20 on company whose growth will be slowing to 4-5% in the coming years. I remember iin 1999 that everyone was saying Cisco Systems was going to be the first $1 trillion company, and look what happened there.

    • http://romainlacombe.com Romain Lacombe

      GDP is a flow measured in dollars per year, which represents the output of the world over a one year period (that’s $60 trillions/year by the way). Market capitali is a stock measured in dollars, which represents the price of a company on the public market. Dimensional analysis is just one reason why comparing both of these measures makes little sense.

      In addition to this, do you really think that there is little growth left for Apple? Last time I checked (2010) they were around a 3% market share in desktops and laptops. Quite a bit of room to grow…

  • Steven L Goff

    I think Jim Cramer is being Pollyanna-ish w/ reagrds to Apple’s iPad #2 release next week….Sell the news for sure! If you think you’re going to climb the $400 HOPE WALL that day…..you’re not. Stocks are forward looking and reactive to only the { suckers}… If you buy Apple that day….you are a sucker IMHO!

    The Verizon iPhone was a flop and this iPad #2 might not be a flop, but will surely be
    getting the full court media pump press that day. Apple is a sell here. Dead
    money here at this level. They need to make monumental acquisition or a split.

    Apple in my opinion needs to start making smart acquisitions that will replace a plateau in R&D that is comming. And for sure a plateau/slow down societal life altering and market impactful release into economy/society/world. A temp pause to curtail it’s current ill societal effects from Humans not keeping pace w/ exponential tech growth. And margin contraction issues to come. And possible Anti Trust issues as well. I also feel it’s the same reasons they should also buy a flash component. Or a major school textbook publisher for it’s already in place licensing and “jumped hurdles” into the future education of the worlds children (lets start in USA) for schooling being done at home via the web and your device. (If you cant see sate budgetary issue and the tech we now have being the end of schooling as we have come to know it….than you dont belong in the market) And w/ VISA it is alllllllllllll about the cashless society going forward. BUT NOW IS THE TIME TO STRIKE/make the move. It’s good for the market and our USA economy as well. Timing is everything….for Apple is now treading water! {{{And that is dangerous for shareholders who are not getting a div at least}}} Maybe buy a hologram related company and it’s tech. Even a cellular provider or satellite company. Maybe Nuance Comm (NUAN) for voice recognition/Artificial Intelligence AI tech. Take that out of future margin contraction equation. If Apple were to buy Visa Inc. It would be like a EBay owning a Pay Pal.

    Bring your VISA CARD (or device) cause Apple dont take American Express!
    pssss… here’s a secret (the rest of world dont want AM Ex either)…they want
    money they know is there….hence DEBIT.

    You should buy VISA Mr. Jobs!….the best thing you can do RIGHT NOW!

    And can Apple afford to do this? Damnnnn skippy they can afford it! A little cash and a little stock. And a stock split in

    AAPL the same day they announce deal to merge/acquire VISA. Apple then can take a shot at
    becoming the worlds first TRILLION DOLLAR market cap company. I am telling ya….it’s the
    “deal of the deals” for Apple and it’s shareholders right now. It also stifles anti trust
    talk cause they will be more so than ever to big to mess with!

    And before I go on, I wanna add this: To most around the Globe (and maybe beyond someday…ya really never know with explosive exponential technology growth) > The Visa brand/ logo equates to universal payment acceptance!

    *Further thesis here below

    http://www.facebook.com/profile.php?ref=profile&id=100000028732477#!/note.php?note_id=186390164712123

  • Surambaya

    Ha! Does this include ADRs? Vodafone (VOD) already has a 1T market cap.

  • http://profiles.google.com/gabsi77 Gabrielle Miller

    I never used to like apple products, I thought they were big and clunky looking, when they came out with the original iPod, I wasn’t impressed at all but with the first generation iPod nano I became hooked. Somewhere over time their products made the transition from being dopey looking to being the sleekest looking things out there (kind of reminds me of the older Suzuki vehicles versus the newer ones). I loved the way iTunes catered to my slight OCD nature when organizing my music. My favourite browser (despite having a dell) was Safari. However in the print lab where most of my time as a student was spent we used macs and when the lab got two new iMacs I fell head over heels in love and knew that my next computer had to be a mac. When my laptop was stolen in Feb I placed my order for the 13- inch MacBook Air and I love it.

    My experience with apple products as well as their customer service has been fantastic and their performance exemplary. For these reasons I plan on eventually upgrading everything to apple products. If they keep up with this and continue to improve then I don’t see why they won’t be the first.

  • http://jasonwheeler.biz/FreeBook Jason @ JW.biz

    I make trades on AAPL almost weekly. Based on today’s numbers I think it 350/share is a steal. I wouldn’t be surprised to see it double in the next three years.

    Learning about Call Options is one of the smartest things I’ve ever done ;-)

  • Spanky6808

    U will be using your ipods to dig worms out of the ground to eat. You are disgusting with your stolen lifestyle. You will soon be paying for it. Soon your 75000 dollar salary will be equivalent to 12000 dollars in purchasing power and you wont be able to find anyone to pawn off all that junk you bought. You are all so fuking pathetic. How do I know? Because I live in Greece and we were the test case. Welcome to Austerity Bitchez (ps Silver Bitchez)

    • anon

      Wouldn’t it be better to spend the dollars when it is worth 75 000 and not 12 000?

      Socialist loser

  • Spanky6808

    U will be using your ipods to dig worms out of the ground to eat. You are disgusting with your stolen lifestyle. You will soon be paying for it. Soon your 75000 dollar salary will be equivalent to 12000 dollars in purchasing power and you wont be able to find anyone to pawn off all that junk you bought. You are all so fuking pathetic. How do I know? Because I live in Greece and we were the test case. Welcome to Austerity Bitchez (ps Silver Bitchez)

  • Full_Disclosure

    Where is your disclosure on whether you own this stock or not? I would assume you are long Apple just by the praise….

  • http://twitter.com/lsbrilliance77 La Nita Noah

    Uh no Apple is not the company I dreamed about

  • Mustblast

    So stupid article, crazy fan was done crazy things with 2 ipads, and 4 or 5 ipods.

  • Anonymous

    Hey James,

    So what the heck is the “ONE reason?” It’s in the title but the answer is not obvious from the text. Are you trying to make your readers work hard to enjoy having figured it out themselves? Or did you forget what you were thinking about when you created the title? If not, would you please answer the question now so your readers can focus on the “one reason” and judge the merits of your one-reason-reasoning. “Explicit is better than implicit.” Not answering means you’re too pusillanimous to take a stand and defend your “one reason” supposition… Or you are unable to defend the title’s claim that there is just “ONE reason.” :-)  Blaming it on the editor is not an option.

    From the last sentence it seems like you’re saying the one answer is because you love Apple. That’s both shallow and deep, but since you didn’t elaborate on the deepness as it relates to others (the market), it just remains as self-oriented shallowness. I know you can do better.

    • Anonymous

      Maybe you don’t look at old posts but I hope you do.

    • Anonymous

      Maybe you don’t look at old posts but I hope you do.

  • Keithen

    Wait!!! Apple is going to be the first trillion dollar company because you like their products? Well when you realize they are ripping you off I will buy those computers from you for $10 each. 

  • http://www.facebook.com/profile.php?id=1032465192 Jason Smith

    I love this post. My house probably looks a lot like yours. 4 iPads, 2 iPod touches, 3 iPods, apple tv, 2 iPhones. I’ve come to hate discs and normal tv.
    Still no Macs though. Waiting…

  • carmelita olaes

    in i love my jesus marriae

  • zune

    Apple gone below 400$. 1 trillion $ company?