11 days later, the throne of the world’s largest market capitalization changed hands. Apple lost the world’s No. 1 market capitalization after two years, and the world’s largest oil producer, Saudi Aramco (hereinafter referred to as Saudi Aramco), took the top spot.
At the close on Wednesday, Saudi ArabiabeautifulWith a market capitalization of nearly $2.43 trillion; by contrast, Apple shares fell 5.2% on the day to close at $146.5 a share, the latest market value of $2.37 trillion, the lowest since November.
Back in January, Apple’s stock hit a record peak of $182, making it the first company in history to surpass the $3 trillion market cap. Since then, Apple’s stock has fallen nearly 20% until it lost the world’s No. 1 market capitalization, which it held for nearly two years.
On the other hand, Aramco’s Riyadh-listed shares have risen 28 percent since the start of the year to a record 46 riyals ($12.27). Saudi Aramco surpassed Apple as the world’s most valuable company, underscoring the recent surge in oil prices that has boosted its stock price. Aramco is expected to announce record profits when it reports first-quarter earnings on Sunday. In fact, Aramco’s net profit will more than double to $110 billion in 2021.
In Q4 2021, when Saudi Aramco’s market value returned to $2 trillion, “Time Magazine” secretly expected Saudi Aramco to seize the throne of the world’s most valuable company from Apple, and said that the stock price changes of the two giants reflected Changes in the global economic situation.
Tech companies have been the undisputed darlings of investors over the past decade. Low oil prices and low inflation led central banks around the world to lower interest rates to stimulate economies in the long exit from the 2008 financial crisis. Combined with the consumer transition to a low-carbon future and investors turning to a new technology-based economy, tech stocks have been a big hit.
This year, however, things have begun to change, with cyclical stocks like oil rising while tech stocks stumble. The Nasdaq has lost nearly 28% so far in 2022. With further uncertainty about economic activity, tech companies are cutting spending and laying off workers. Even as Apple posted better-than-expected profits in the first three months of the year, the stock fell.
Saudi Aramco becomes the world’s No. 1 market capitalization | Source: Financial Times
The reason behind this: As the impact of the global epidemic on economic activity begins to weaken, consumers go out of their homes and spend less on entertainment at home, coupled with factors such as inflation, rising bond yields, and interest rate hikes, investors are more interested in holding expensive stocks. Tech stocks turned cautious, with the market value of tech companies such as Apple under pressure.
Apple has always been regarded as a relatively safe technology stock, but even with stable growth and a good book, it is difficult to escape a series of impacts caused by factors such as geopolitical conflicts, epidemic blockades, and inflation. Many tech stocks and other companies with high price-to-earnings ratios have experienced varying degrees of panic selling, and a large part of the outflow has invariably flowed to energy stocks.
Energy giants like Saudi Aramco have benefited, especially as investors worry that the conflict between Russia and Ukraine could cut off Russian oil supplies. In addition to black swan events such as the Russian-Ukrainian conflict, in the long run, in the post-pandemic era, fossil fuels are re-establishing their vital role in all aspects of daily life, and buying the future through technology stocks is giving way to the current predicament: from food When it comes to travel, rising energy costs have affected every aspect of life.
Oil prices have surged on record this year. In March, oil prices rose to $139 a barrel, a 14-year high. The S&P 500 energy sector has surged about 40% this year, supported by rising Brent crude prices. Occidental Petroleum is the best-performing stock on the S&P 500 this year, up 107%. The energy sector that Berkshire’s heavy holdings mentioned earlier is Occidental Petroleum.
In an interview with Bloomberg, James Meyer, chief investment officer at Tower Bridge Advisors, said: “You can’t compare Apple to Aramco in terms of business or fundamentals, but the outlook has improved in the commodities space. They are inflation and supply. Nervous beneficiaries.”
Rising energy costs, on the other hand, have also kept inflation high, forcing the Fed to raise interest rates at the fastest pace in decades. Higher interest rates push down the discount rate, and investors accordingly lower the valuations of tech companies’ future revenue streams, thereby driving down their stock prices. Even in the medium to long term, with inflation still stubbornly high, investors are worried about a more aggressive Fed, which has accelerated their shift to more conservative cyclical stocks.
In an interview with Bloomberg, Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder, said it may be a while before tech regains dominance, given the Fed will raise rates by at least 150 basis points further this year and the prospect of a resolution to the Ukraine conflict.
In addition to changes in the capital market, the technology industry itself has also encountered certain difficulties, the most prominent of which is the supply chain problem, which has become a major concern for investors in the short term. “COVID-19-related disruptions and supply constraints caused by industry-wide silicon shortages are impacting our ability to meet customer demand for our products,” Apple’s chief financial officer Luca Maestri said on the first-quarter earnings call.
Last month, Apple warned of huge losses related to the current situation, saying production and logistics issues could hit its sales for the quarter by $4 billion to $8 billion.
