What Makes Apple So Valuable?

For years, Apple Inc (AAPL​) has held onto its rank as the most valuable publicly traded company in the world. As of August 1, 2018, its market capitalization is $974.42 billion. That’s a significant lead over second-ranked Amazon.com (AMZN), which is worth $874.72 billion. As Apple approaches the $1 trillion market capitalization mark, stock rose 4% on August 1, 2018. Shares started trading that morning at $199.13. 

The rise of Apple began with innovation and a slew of product launches over the last decade. From the iPod to the iPhone to the iPad and the Apple Watch, each new product has woven its way into the fabric of our culture. (See also: Steve Jobs and the Apple Story.)

With each launch, Apple has kept its fiercely loyal customers on edge as they anticipate the next major breakthrough and the next creative upgrades to their devices. But some analysts question whether the company can keep the momentum going and maintain its footing as number one, or whether a rival like Alphabet (GOOG) or Amazon will eventually surpass it.

Apple is still in the "virtuous cycle," which means it has a positive pattern where a successful solution leads to more of a desired result or another success. In turn, that generates still more desired results or successes in a chain.

As long as Apple continues to innovate, there will be heightened demand for its products and services. This leads to pricing power, expanding profit margins and improved cash flow, which help drive the stock price higher while also allowing Apple to return capital to shareholders.

In contrast to the virtuous cycle, a "vicious cycle" leads to rapid losses. It begins with a loss of market share, which then leads to lower prices, laying off employees to reduce costs and then customer dissatisfaction. Companies in a vicious cycle often take on debt, and their shares prices unwind.

Apple is certainly not in any stage of the vicious cycle. In recent years, the company has held onto its share of the U.S. smartphone market, although competition from Samsung and its popular Galaxy smartphone continue to increase.

In August 2017, Kantar Worldpanel announced Samsung as the top smartphone seller in the U.S. Apple grew its smartphone market share to 34% from about 29%, according to Kantar. But Samsung also gained share and claimed the top spot with 36% of the market. However, other firms, including comScore, maintained that Apple remained the top firm.

Critics say that without Steve Jobs at the helm, Apple has lost its innovative edge in recent years and is riding on its brand to drive sales. Its Apple Watch has not drawn the same enthusiasm and cult following as its iPhone did when it was first launched. (See also: The Story Behind Apple's Success.)

On Jul 31, 2018, Apple released financial results for its fiscal 2018 third quarter. The company reported that revenue increased 17% and EPS rose 40%. Apple also reported that services revenue has reached a new all-time high.

While some analysts say Apple’s heydays of innovative breakthroughs are over, the company continues to announce advances to its technology. It included cellular service in its latest smart watch models. And the iPhone 8 models, which went on sale Sept. 22, includes wireless charging and other improvements. Apple launched its iPhone X on Nov. 3 with facial recognition technology and so far the results have been mixed, with analysts saying the demand for the newest phone is lukewarm and that the company is too dependent on phones for growth. (See also: Apple’s iPhone X May be Cannibalizing iPhone 8.)

Apple announced that it would take advantage of the corporate tax break it is getting under the new tax laws to invest $350 billion in the U.S. over the next five years and create as many as 20,000 new jobs. The company also said it will build a second corporate campus in the U.S., which should create at least 2,000 of those jobs.

As a well-established brand with a loyal following, Apple has continued to defy naysayers' expectations. For the time being, the company seems well anchored as the world's most valuable company and is unlikely to be dethroned anytime soon, especially with its potential to soon become the first trillion-dollar company. (See also: The Apple Ecosystem.)