Yes, but Apple more worth than Exxon that makes 15+ billion dollars a year in raw profit easily?
At present, no. However, psychology plays an important role. There is typically a future orientation to stock prices, namely they reflect expectations about the future. Of course, such expectations could be wrong. Markets are human institutions and just as humans lack prescience, so do markets. Far from the claims some have made in the past--tempered greatly by the recent financial and economic turmoil--markets are imperfect "discounting mechanisms."
Under a scenario that the tablet market could ultimately be huge (some questions do exist, so that shouldn't be taken as a "slam dunk" assumption) and oil is a finite resource (requiring ExxonMobil and other participants to evolve to overcome that challenge), markets could well be expecting better long-term growth prospects for tablets and related/spin-off devices/services that could emerge as that young sector grows. Regulatory risk in the wake of the financial crisis/recession and BP oil leak could also be casting somewhat of a cloud on oil industry prospects.
Apple's valuations are almost certainly being driven by its recent innovation and empirical research indicates that people typically view the future pretty much as they view the very recent past-present. Moreover, so long as Steve Jobs is associated with the company, it will likely retain strong credibility on the innovation front. Hence, it currently enjoys fairly lofty expectations for growth. A slowdown in its pace of innovation or departure of Steve Jobs would likely have a significant adverse impact on those expectations.
As for Apple and the "pad" market.. the same was said of Apple and the smart phone market, and look where that has gone... not Apple's way by any means. The "pad" market is still small and the amount of different "pad" versions coming out by competitor is huge, and all of them pretty much are better than the IPad.
I don't disagree that Apple faces some strong, even intense competition. Market domination is far from assured for any player. In fact, my guess is that the market will stabilize with 3-5 major players. Apple will probably be one of them. Google might, too. Microsoft, though, has an opportunity, but it is not assured of becoming one of the top 3-5 firms in that area.
Apple has 5% of the world market in PCs, and it is not increasing much. It has 0% of servers...
With respect to PCs, Apple offers a not so pleasant case example of an early entrant that was unsuccessful in leveraging its early lead to lock up a sustained long-term advantage in that market. With the Ipod, it has done so by locking up relationships. I suspect that it is doing the same with respect to tablets and will enjoy a large, though not dominant, market share for some time to come. Even as that market share erodes over time due to increasing competition, sufficient industry growth could still translate into higher revenues and higher net income for Apple from tablets. The challenges would arise once the tablet industry is maturing.
With respect to PCs and also servers, those are largely commodity businesses, even if their major players try to argue (in vain) otherwise. Cost (per computing power or storage space) is becoming the prime dimension on which competition is based. Services built around servers are less of a commodity. Not surprisingly, Cisco markets itself as providing "technology services" rather than servers (its router sales revenue is already falling). Also, Cisco has been making some strategic acquisitions to diversify its business in the face of industry consolidation. That Apple has only a small foothold in PCs and no presence in manufacturing and selling servers is not really a problem for the company.
In fact, over the past 5 years, Apple has experienced more vigorous growth than Cisco (sales rising from $13.9B to $42.9B vs. Cisco's $28.4B to $40.0B; net income rising from $1.3B to $8.2B vs. Cisco's $5.6B to $7.8B)
...and has a falling market share of the world smart-phone market.
But that market is growing sufficiently fast that even a smaller market share is still translating into higher revenue from that market. There's also the applications dimension. Apple currently provides more than 900 applications and some 25 million apps have been downloaded to date. Those apps provide another income stream and, arguably, it is the apps that demonstrate greater creativity than the smart phones themselves and imitation is more difficult. If, in fact, that proves correct over time, apps will provide higher profit margins than smart phones.
Of course, Apple is not without its weaknesses or competitive threats. Mr. Jobs health is one such possible risk. Risks to intellectual property e.g., due to digital content theft, is another.
So why is Apple's valuation more than Exxon? It makes no sense what so ever unless it is full of hype and frankly a bubble.
As noted at the beginning, there might be some plausible reasons (Maybe ExxonMobil is undervalued instead? Maybe its growth prospects down the road appear relatively unattractive? Maybe regulatory/environmental issues i.e., pollution, accidents, climate change, etc. pose substantial challenges to its growth? Maybe downstream developments e.g., greater energy efficiency poses a risk?). It should be noted that there is empirical evidence that companies in the early stages of their life cycle or those whose operations are disproportionately based in industries at such a stage (Apple), enjoy premiums that are sometimes overoptimistic. Forecasting growth is not a precise or easy effort. Huge errors can be made. Ultimately, not all of the companies that command abnormal valuations wind up having their stock soar to bubble-like proportions. Some simply witness the onset of an extended period of below industry average stock price appreciation afterward until stock prices are more in line with fundamental valuations/growth prospects.
Could Apple's stock reach prices that might constitute a bubble (an unsustainable situation during which the bubble would ultimately burst sending shares markedly lower)? Perhaps. I'm just not sure that Apple's share price is there yet. Apple's price might well be somewhat elevated, but not every case in which a stock's price is elevated actually constitutes a bubble. In fact, most don't. If Apple were trading around or above $400 per share right now, I'd be more worried that it was in a bubble situation or approaching such a situation, especially if its stock price was generally accelerating to the upside and becoming increasingly decoupled from underlying fundamentals/growth prospects of the industries in which Apple does business. Something in the $275-$325 range, especially if the next earnings report shows more robust growth, may well represent a fairly reasonable valuation.
