Apple, iPhone, Irrational Exuberance, Etc.You might have heard that Apple’s released a mobile phone tomorrow. Since this “iPhone” device was announced back in January, a nice $34 billion or so has been added to Apple’s market cap by investors. Breaking Views compares that to Nokia’s market cap, which stands at $108 billion — despite the fact that it will sell 55 times more handsets than Apple at the end of the year. The piece argues that the $34 billion increase in Apple’s market cap reflects investors’ perceived value of Apple’s phone business, and using Apple’s reported margins of 13% — which happen to be identical to Nokia’s — the phone business is valued at 100 times projected 2008 operating profits. Nokia trades at a much lower 10 times multiple, leading the site to conclude that either it’s badly undervalued, or Apple is massively overvalued. Perhaps that’s true, though the runup in Apple’s share price reflects the ridiculous level of hype and expectations for the iPhone, and it’s something that could change quite quickly should the device not prove to be an overwhelming success. Furthermore, it just reinforces the reality that stock prices are disconnected from a company’s underlying business, and often have far more to do with investors’ perception of a company than financial reality. Also, watch for Apple stock to tumble a few points Friday, as investors dump their shares so they can finance their own iPhone purchases.
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