Why Apple's cheap
I'm going to take one last bite at the Apple valuation question, since I'm happier now about why Apple's trading where it's trading than I was when I wrote my original post. — The first thing to note, as pointed out by Tadas Viskanta, is that Apple's now a megacap, and that changes quite a few things.
Context & Ripple Effects
Felix Salmon is closing out an argument he opened five days earlier with his Apple valuation chart of the day, now conceding he understands the multiple better: Apple has become a megacap, and Tadas Viskanta's point that megacap status 'changes quite a few things' is doing the explanatory work. The scale is real — back in 2007 Apple's market value passed IBM's, and the company has kept compounding since.
First-order effects
- Investors following the valuation debate get a cleaner frame from Salmon: Apple's size itself, not any missing catalyst, explains why the stock trades where it does despite strong fundamentals.
- Samsung now holds a confirmed license offer for Apple's iOS scrolling patent, after Nokia and IBM signed equivalent deals on December 4 — take the license or keep litigating.
Second-order effects
- If Samsung accepts, licensing fees become a direct per-device cost on rival handsets, converting Apple's patent portfolio into recurring revenue alongside hardware sales.
- At megacap weight, index-tracking funds must hold Apple at full allocation regardless of their valuation view, dampening the price discovery that would otherwise close the gap Salmon describes.
Third-order effects
- If megacap status structurally compresses growth multiples, the market's pricing of very large tech companies decouples from earnings momentum — a template every fast-scaling tech firm eventually inherits.
- Megacap-scale cash generation also funds infrastructure at a different order, visible in Apple's new Maiden, North Carolina data center and the unconfirmed report of a second facility in Prineville, Oregon.
The trend: The Apple valuation debate is shifting from growth-stock arithmetic to megacap mechanics, where sheer size — not fundamentals — sets the multiple.