Apple’s most valuable product isn’t the iPhone

The new folding-screen iPhone will set you back US$1,999 for the base model — new territory for an Apple Inc. handset. Apple’s stock is even more expensive, though. Trading at 36 times the coming year’s expected earnings, its valuation multiple is higher than it has been since the early days of the iPhone, when the company was growing like wildfire.

This summer, Apple has opened up a big, sustained valuation premium over Microsoft Corp. (25), Alphabet Inc. (26), Amazon.com Inc. (27), Nvidia Corp. (18) and Meta Platforms Inc. (21).

Among the “Magnificent Seven” only Tesla Inc. has a richer price-to-earnings ratio — and only because it is inflated by low earnings.

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Apple never approached the top spot on the valuation table, even briefly, before late last year. For many years, its multiple was depressed by fears that its dominance in phones would prove fleeting, as Nokia’s and BlackBerry’s did.

That latter point remains true: the market expects Apple’s earnings to grow at a high single-digit rate in the next few years, slower than its big peers.

The company also faces new challenges, notably input cost inflation and slowing growth in its services business. And yet its valuation is pulling away.

Explaining stock markets is more art than science, but here’s an informed guess: Apple’s valuation reflects investors’ desire to own tech stocks that are not concentrated bets on AI.

“Apple tends to be countercyclical from a risk appetite perspective,” says David Vogt of UBS. A year or two ago, when enthusiasm for AI was running hot, there was no Apple premium to speak of. “What has changed is the view that doing billions in capex to support the AI model makers might not be the best investment.”