• In the absence of corresponding business growth, the stock of $Apple Inc (AAPL.US) $has reached an unprecedented level.

• In particular, Apple Inc's share price soared 20 per cent in six weeks after it released a general earnings report in October.

• While it is impossible to tell how long Apple Inc's momentum will last, the value of the stock increasingly depends on highly speculative assumptions such as VR and Apple Inc.

• Apple Inc's challenges in 2022 range from antitrust to the supply chain to the weakness of American consumers.

Apple Inc's stock has been separated from its business.

Apple Inc has become the theme of speculative bubbles. Apple Inc's share price is now much more reasonable than the fundamentals of its business, without the need for over-optimistic forecasts for the future. The stock soared to an all-time high after Apple Inc submitted a general earnings report in October. Besides, it's just a rumor, but the local Apple Inc store in Texas is not as busy as I thought before Christmas.

Some observers have linked Apple Inc's soaring share price to speculators buying short-term call options on the stock, which is more common in meme stocks such as GameStop (GME) and AMC Entertainment (AMC). This will make sense because the recent surge in market capitalization of $500 billion is not based on reality. Apple Inc's current price-to-earnings ratio is more than 30 times, and analysts generally expect growth to peak this year and slow at best.

Analysts' forecasts are becoming more and more abstract.

If the current data are mediocre, why did Apple Inc's share price soar before the company made a profit? Recent analyst reports seem to like to emphasize abstractions, such as the prospects of VR (Virtual reality), Meta Universe and Apple Inc cars.

VR is interesting, but it hasn't changed my life. Letting a friend have one as if he had one of his own is a key contrast to iPhone. Take Meta (FB), formerly known as Facebook Inc. Meta has sold about 10 million Oculus VR headphones. Prices for these sets start at $300, so I estimate they made about $1 billion with a 30 per cent profit margin. 1 billion US dollars is a lot of money, but far less than 2.8 trillion US dollars (to be exact, 12800 of Apple Inc's market value). I expect Apple Inc to make a difference in the VR field, but from a profit point of view, I don't think Apple Inc will make a big fuss about it.

The meta-universe is another curious place. Silicon Valley has recently been suppressed by whistleblowers, so what could be better than keeping your smartest marketers in a room for a few days? until they come up with something you can use to launch a large-scale public relations campaign to distract attention from antitrust, employment and social issues? Apple Inc is not the main driver of Silicon Valley's social problems, but I don't have high expectations for the profitability potential of meta-universe, and most use cases seem to be no different from using FaceTime.

There is a lot of interest in electric cars these days, so the best way to hype a company (except to put bitcoin on your company's balance sheet) is to guess that you might make electric cars. Apple Inc has plenty of R & D resources, but for them, getting into the auto business is as meaningful to me as starting Apple Inc Airlines. The auto industry is notorious for its labour-and capital-intensive and low profit margins. Apple Inc can simply license a car, but will the manufacturer be willing to pay the royalties Apple Inc wants? If the car eventually has a recall or safety problems, is Apple Inc willing to deal with potential brand problems? I don't think the auto business is suitable for Apple Inc's expertise in consumer electronics.

The challenges facing Apple Inc in 2022 and beyond

1. Without sustained fiscal stimulus, whether earnings forecasts are realistic is a question for the entire US economy, but for consumer-oriented companies like Apple Inc, it is a particularly thorny issue. 2021 was Apple Inc's best year ever, as consumers received large amounts of cash from the US government's stimulus package. None of these concerns are unique to Apple Inc, but they do affect the company.

2. The core question in 2022 and beyond is whether Apple Inc's earnings of about $3 a share before the outbreak better reflect the long-term demand for Apple Inc's products, or whether their earnings of $5.67 a share in 2021 are the new normal. I think the overall return of the stock market in 2022 is overestimated without stimulus spending. (that is, the typical American family earns about $60,000 after tax in 2021, but $10,000 of that comes directly or indirectly from stimulus packages, such as three rounds of cheques, unemployment expansion, student loan suspension, etc.). It turns out that if you give a typical American family an extra $10, 000 so they don't have to work for it, statistically, many of these people will upgrade their iPhone. Looking ahead, consumers will only be able to spend the money they actually earn. Apple Inc has a positive impetus in terms of service revenue, but I don't think they can maintain iPhone sales close to 2021. I guess Apple Inc's earnings per share in 2022 will be between $4.50 and $5.

3. Apple Inc said in a recent quarterly earnings call that the supply chain is a challenge. I don't think the supply chain will be a problem in 2022 as it is in 2021, but because consumer demand is lower in inflation-adjusted wages and in the absence of more stimulus. In other words, the chip shortage does not help Apple Inc's career, and the longer it lasts, the more it can limit Apple Inc's uplink earnings.

4. Apple Inc's "golden goose" is service income. However, Apple Inc is increasingly subject to anti-monopoly law sanctions. We saw Apple Inc recently cut app store fees under pressure from regulators, and Apple Inc and Alphabet Inc-CL C (GOOG) were censored for Alphabet Inc-CL C's right to pay Apple Inc about $15 billion as the default search engine this year. Apple Inc may make more profit from the deal with Alphabet Inc-CL C than they get from meta-universe. The risk is that regulators in the US or EU will eventually reject the proposal and cut off the flow of money. The deal is worth about 6% of Apple Inc's annual net income, a ratio that could be even higher if iPhone sales slow.

5. Apple Inc's earnings per share growth is largely driven by buybacks. When Apple Inc traded at 10-12 times earnings for most of the 2010s, Apple Inc made a huge return on the shares he bought back. With a price-to-earnings ratio of more than 30, this strategy is only effective at 1x3 and depends on the business continuing to outperform the market at levels that have historically been difficult to achieve. I'd rather see Apple Inc pay dividends here.

Believe it or not, Apple Inc traded below the price-to-earnings ratio of the S & P for most of 2010. Now it trades at a high premium. I don't usually judge the market based on sentiment, but I think a price-to-earnings ratio close to the S & P 500 (about 20 times earnings) is more appropriate than a high premium. There is no particular reason for the market to enforce this, but based on Apple Inc's basic business, I think this is correct. This will put the stock price around $100, which is where I buy the stock.

Conclusion

Apple Inc shares have experienced an epic bull market since the end of 2019. If this operation is fully reflected in the long-term success of the business, it will not be too worrying. However, as Apple Inc's valuation is getting higher and higher, and concerns about the sustainability of his earnings have intensified, Apple Inc's shares are facing double problems: one is that the income estimate is difficult to achieve, and the other is that the valuation is too high. After a gamma squeeze in November, Apple Inc looks like he's in a bubble. Apple Inc's business will face a very difficult period to meet high expectations for his stock.