Investors click out of Apple into Google

Google's share value has hit a new high.

Story highlights

  • Apple's stock plumbed new depths on Monday just as Google hit an all-time high
  • Wall Street struggles to come to terms with the rapid shifts in the smartphone market
  • Investor rethink about the two companies has led to a striking readjustment in valuation

Apple's stock plumbed new depths on Monday just as Google hit an all-time high, reflecting Wall Street's struggle to come to terms with the rapid shifts in the smartphone market.

The investor rethink about the prospects of the two tech companies has led to a striking readjustment in valuation, with Google climbing from barely a third of Apple's worth six months ago to more than two-thirds yesterday, or $267bn.

At Monday's close, Apple's market capitalisation stood below $400bn for the first time in more than a year.

Reports that Apple could introduce a new smart watch as soon as this year and an endorsement of chief executive Tim Cook's strategy from Warren Buffett failed to counter the negative sentiment that has plagued Apple's shares, which are now 40 per cent below their highs.

Some Apple investors, led by Greenlight Capital's David Einhorn, have been pushing the company to pay out more of its $137bn cash pile, something founder Steve Jobs long resisted.

On Friday, Mr Einhorn dropped a lawsuit against Apple over corporate governance changes but continues to push for higher returns of cash, something Mr Cook has said the board is actively considering.

Speaking on CNBC on Monday, Mr Buffett said that if he were in Mr Cook's shoes, he "would ignore" Mr Einhorn but added that he did advise the late Mr Jobs to buy back stock.

Warren Buffett: If he were Tim Cook, he'd be buying Apple

"I would run the business in such a manner as to create the most value over the next five to 10 years. You can't run a business to push the stock price up on a daily basis," the Berkshire Hathaway chief said. "I think Apple's done a good job of building value. They may have too much cash."

Apple's recent stock market weakness stands in stark contrast to the strong momentum in Google's shares, which have risen by 15 per cent since the start of 2013. At the same time as investors' love affair with the iPhone has waned, many have warmed to Google's prospects in mobile.

Its Android smartphone operating system has gained market share at the iPhone's expense over the past two years, and Samsung is set to unveil its latest flagship Android device, the Galaxy S4, this month.

Wall Street's worst fears that the shift to mobile would devalue Google's advertising have been dispelled in recent weeks. In January, Google reported that it had managed to hold the decline in its overall pricing to 6 per cent in the final months of last year.

That news, along with other indications of strong momentum in its core search business, sparked a rally that has since seen its shares rise by nearly 16 per cent, pushing them through $800 for the first time two weeks ago.

At the close in New York, Google had climbed 1.9 per cent to $821.12, a new high, while Apple's stock was down 2.5 per cent to $419.57.

Last week, Mr Cook said he sympathised with "disappointment" among Apple shareholders about its stock price, saying: "I don't like it either . . . We are focused on the long term."

Colin Gillis, technology analyst at BGC Partners, said Apple shares were suffering mainly because investors had soured on the stock and were looking for a catalyst to revitalise its share price.

"Another Monday has come and gone with nothing from Apple's management," he said. "There's been no news on new products, there's no news on dividends, there's no news period from the company."

In January 2012, when Apple's market capitalisation first passed $400bn, its valuation was compared with nation states, and little more than a month later it went on to surpass $500bn, a figure few companies have attained.

After its shares touched an all-time high of $705.07 in September, Apple's valuation fell back below $500bn in December amid fears about iPhone sales and its slowing growth rate. Those concerns have intensified since quarterly results in January, with many Wall Street analysts projecting limited earnings growth for fiscal 2013.

Ben Bajarin, principal analyst at Creative Strategies, a technology researcher, said Wall Street was unable to see past the negative sentiment despite the company's strong fundamentals.

"Wall Street was enamoured by Steve," Mr Bajarin said. "Investors are not getting that captivating, gripping view that they used to have. It's actually better positioned in the long term than when he was alive."