AAPL
⚠️ Apple’s price-to-earnings (P/E) multiple is significantly elevated, currently double the historical market average, raising concerns about its sustainability.
📉 If Apple’s P/E ratio were to revert to a more normalized level (around 16.5x), its substantial weight within the S&P 500 index could potentially be halved.
📊 Apple is highlighted as part of a group of top S&P 500 companies (including Nvidia, Microsoft, Amazon) trading at a high average P/E of 33x expected 2025 earnings, suggesting potential headwinds for future stock returns if multiples contract.
@adriarivero:
“In Apple, for example, if its multiple P/E returned to a more normal level of 16.5 times, which is the average of the stock market and half of its current multiple, its weight in the index would also be reduced by half. Rochon comments that the four largest companies in the S&P 500, Apple, Nvidia, Microsoft, and Amazon, at the time of recording this video, trade at an average multiple of 33 times P/E, or expected earnings for 2025, compared to about 19 for the remaining 496 companies. These high market valuations are discounting very strong growth that is expected to continue for several years in the future. For example, if the four main companies of the S&P 500 doubled their earnings per share, their EPS, between now and 2030, that would imply an annual growth of 15%. But if, at the same time, the average P/E multiple, price and earnings, fell to 20 times in 2030, the annual return of those four stocks would only be 4% in the stock market. Therefore, he warns that much of the current market rise comes from inflation or an increase in the multiple and valuations, not from earnings, a dynamic that, according to him, cannot last forever.”
Watch the exact part of the video where @adriarivero talks about Apple here:
Watch the video on YouTube
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