For the past decade, Apple’s (NASDAQ:AAPL) performance has been near flawless. The misses are notable for how few they’ve been, such as its MobileMe product, a subscription service for storage (now resurrected as iCloud).
The tech sector, however, is full of examples of companies that came on strong only to flame out or at least cool off. Apple itself is an example, having its own near-death experience in 1997. It took a $150 million investment from archrival Microsoft (NASDAQ:MSFT) to save Jobs & Co.’s bacon.
In the past year alone, we’ve seen a variety of top tech companies hit a wall or implode. These include operators like Netflix (NASDAQ:NFLX) and Research In Motion (NASDAQ:RIMM). When problems emerge for these wildly popular momentum stocks, the consequences can be severe.
So, is it conceivable that the same thing might happen to Apple — yet again? For now, the company continues to grow at breakneck speed, and it’s extremely well-cushioned, with no debt and $98 billion in the bank (here are some suggestions for what Apple could spend that cash on). Yet, the iJuggernaut definitely has some risk factors that could take the mo out of its momentum.
Let’s take a look:
Apple TV: I highly recommend Walter Isaacson’s book, Steve Jobs. It provides great insights into how Apple became an “insanely great” company. The biography also has some hints about the future, especially with Apple TV. Jobs talks about how he “cracked” the code for the interface and how it would sync with other Apple products (through the iCloud platform).
Let’s face it, the TV market has seen little innovation over the decades. Much of the improvements have been with the visual quality and size of the screens (oh yeah, there’s also 3D — for what that’s worth). So the industry must be ripe for disruption, right?
Perhaps not. What makes TV so great is that it’s passive. You can sit on the couch, eat nachos and watch a football game or a movie — and just chill out. Do you really want to do things like change your status update on Facebook and tweet out some messages, or book a hotel room or do Web research on your living room’s big-screen TV? Such things may be important for some of the time. But hey, people still spend much more of their time watching TV than with other media.
Sure, Apple’s products are addictive. We barely put our iPhones down, and we tap away on our iPads. But would an Apple TV get that much action? Or would it be just another expensive consumer device? And speaking of expense, how often would you be willing to upgrade a device with a price tag likely to be in the thousands?
iPad 3: According to the rumors, Apple is expected to launch the next version of the category-creating iPad line in the first week of March. The expectation is that it will lead to a surge of folks rushing to upgrade from an iPad 2 — as well as loads of new customers. After all, that’s usually the case when Apple launches a new version of anything.
But things may be different with the iPad 3. All in all, the new device appears to be lackluster, with the top features being a better screen and improved Net connection speeds. Those things may be interesting to new customers, but will they really be enough to get a rush of upgrades from existing iPad owners?
It seems like a stretch. The fact is, the iPad 2 already is a fantastic device — and should work fine for most users.
Apple should also be worried about Amazon’s (NASDAQ:AMZN) Kindle Fire. True, it’s nowhere near as capable as an iPad, but its $200 price tag is attractive. Besides, Amazon has the resources and savvy to market the device. According to a report from IHS iSuppli, Amazon already has about a 14% share of the tablet market.
Market Psychology: If you check the portfolios of many mutual funds and hedge funds, you’ll likely see Apple stock as a top holding. And of the 56 analysts covering the company, only one has a sell recommendation: ACI Research’s Edward Zabitsky. He thinks the iPhone’s gross margins will get cut in half because of mobile-phone competition from Google (NASDAQ:GOOG) and even Microsoft.
But when bullishness is at extreme levels, it’s usually time to get concerned. Some folks are starting to use “bubble” in the same sentence as Apple. To get some perspective on this, the Market Anthropology blog put together a chart that compares Apple to two other stocks that had undergone rocket-launch ascents only to abruptly “revert to the mean” — Microsoft and PetroChina. Market Anthropology’s simple observation: When the “chart of the world’s largest market cap company goes parabolic, well – the jig is up real soon.”
Here’s another (and highly unscientific) indicator. An InvestorPlace reader poll asked “As AAPL shares pass the $500 mark, how high (or low) do you think Apple stock will go?” The vast majority of responders expect Apple to keep rising, but of the minority that see it set for a fall, the largest percentage see it taking a big fall. Which crowd is wiser?
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned securities.