APPLE, the maker of the iPhone, has reached heights that have not been seen before, with a market valuation of $770bn. It is worth more than the entire S&P 600 small-cap index, or two Berkshire Hathaways.

The question for investors is whether the Cupertino-based technology behemoth can surpass the $1tn mark.

Investors have thus far wagered that it can, sending the shares to an all-time high last week. Analysts on Wall Street have taken the view that Apple will, if anything, go higher, and lifted their price targets at a heady clip. Goldman Sachs raised its view to $145 a share around two weeks back — worth $845bn based on current share counts. The highest target, $165, from First Shanghai Securities, would give a market valuation of $960bn.

Accelerating iPhone sales, rising earnings forecasts, the largest buyback and dividend programme in the US and the prospect of new products — including reports of a car — have pushed the stock up 19pc this year, adding more than $110bn to the market valuation.

By contrast, valuations for the next 10 largest businesses on the S&P 500 have dropped $67bn, including $10bn-plus haircuts to Exxon, Microsoft, Procter and Gamble and Johnson and Johnson.

On the prospect of Apple nearing the $1tn mark, James Gautrey at Schroders says: “It’s possible in the next couple of years ... really because the multiple investors are willing to pay for [the group] is expanding.

“The innovation Apple is coming out with — payments, healthcare, Beats [headphones] — those three parts for the consumer are really starting to lock people in.”

Investors find the tech giant’s growth compelling, sending its shares to an all-time high

Sales of the iPhone jumped 57pc from a year earlier to $51.2bn in the company’s first fiscal quarter, far surpassing Wall Street forecasts. The phone accounted for more than two-thirds of Apple’s overall revenues in the period and sent profits to record levels.

Secular trends in the industry, including the shift to cloud computing, have also buoyed the company. “Apple’s iOS platform is the primary beneficiary of the shift to mobile computing,” says Deborah Koch, a portfolio manager at Northern Trust’s technology fund. “It’s similar to the 1990s when client server applications were built on Microsoft Windows and Oracle platforms.”

This has prompted a re-rating of the company’s shares and earnings potential. Analysts project sales in the 2016 fiscal year of $237bn — 17pc higher than forecasts set a year ago. Next year’s earnings are expected to hit $9.26 a share, up 44pc from 2014 levels and 29pc higher than consensus projections a year ago.

“What is propelling [Apple], and ultimately the driver of the stock, is that the company is beating expectations,” says Andrew Slimmon at Morgan Stanley Wealth Management.

Investors find the valuation compelling because of Apple’s growth. The company trades at 15.4 times 2015 earnings, below the 17.7 multiple ascribed to the broader S&P 500.

Apple’s buyback programme — prodded by activist investor Carl Icahn — has also acted as something of a floor on its share price. Last year the company spent more than $56bn on buybacks and dividends, 6pc of the $900bn S&P 500 constituents put towards the returns, according to S&P Dow Jones Indices. The group’s 1.4pc dividend yield, while lower than the 2pc offered by the S&P 500, has attracted investors searching for income as yields on the longest-dated US Treasuries hover near record lows.

Technology analysts at Credit Suisse expect Apple to lift its capital return programme to $202bn through 2017, including $37bn in dividends. Ms Koch says such a move will probably attract more value investors to the stock as they seek yield-bearing assets.

Despite the gains, there remains a cautious spectre to the dialogue with investors, many of whom remember the company’s precipitous 45pc slide in 2012-13 as concerns flared that competitors were winning market share. Other technology groups, after all, have marched higher before sliding: Microsoft and IBM among them.

“While things look good now, they will at some point get into that funk again,” says Bob Doll at Nuveen Asset Management. “If you have confidence, it is where you can make some money stepping in.”

The company’s brisk rise has created a conundrum for investors benchmarked to the S&P 500. Apple represents 4.1pc of the market cap-weighted blue-chip index, far more than any other constituent. Portfolio managers have had to hold at least that much to avoid being underweight the iPad maker, and those who have eschewed a position in the company have missed out on its gains. Conversely, a decline in the company’s shares presents a potential risk.

Excluding Apple, the S&P 500 tech index would be up less than 1pc since the year began, according to data from S&P Dow Jones Indices. The overall S&P 500’s gain would be 55 basis points lower. “If you run a diversified portfolio and you don’t own Apple, you are taking a very big bet against it,” says Mr Slimmon. “That forces a professional investor into the stock.”

Published in Dawn, Economic & Business, March 2nd , 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play