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Investors warned on big tech complacency as Apple hits $1trn

Investors warned on big tech complacency as Apple hits $1trn

Investors have been warned to be cautious on Apple's prospects as it becomes the first company in history to have a market capitalisation of $1trn (£760bn).

The US technology company’s latest earnings update, where the business reported a 17 per cent increase in sales, caused the shares to rise by 40 per cent putting it over the $1trn threshold.

This was in contrast to the fortunes of Facebook and Twitter, which reported slower user growth and suffered severe share price drops.

Russ Mould, AJ Bell's investment director, said: "Price increases on its hardware and flourishing services and app store revenues more than compensated for sluggish volume growth in iPhones, iPads and iMacs."

He added: "Investors cannot be complacent about Apple, even if the numbers look good now. The strong app store revenues show just how sticky – or loyal – the company’s customers are and Microsoft’s positive returns for investors even from the 1999 and 2007 peaks show that software and service firms can be much more resilient than hardware ones.

"But Apple may need to keep developing its revenue streams from services since slowing hardware volumes do pose a challenge and it remains to be seen just how far the company can squeeze up iPhone prices as it launches next-generation products."

David Keir, who jointly runs the £130m Saracen Global Growth and Income fund, said the strong share price performance of many of the largest technology companies had been driven by the rise of passive investment strategies, which buy the largest companies in an index, so when a company reaches a certain size, it grows more because passive funds have to buy more.

Meanwhile Tom Slater, who jointly runs the £7bn Scottish Mortgage investment trust, is a long-term sceptic on the investment case for Apple, despite being a very significant investor in technology businesses such as Amazon.

He said that since the death of Apple founder Steve Jobs, the company had struggled to bring genuinely innovative products to the market.

Simon Edelsten, who runs the £170m Mid Wynd investment trust, said he sold his Apple shares several years ago as he felt the company’s growth had peaked, because he had the same concerns as Mr Slater.

Kathleen Brooks, research director at Capital Index, said Apple shares had performed poorly relative to other technology businesses prior to the results announcement.

Jon Cunliffe, chief investment officer at Charles Stanley, said technology companies continued to be among the most profitable on the US market.

 david.thorpe@ft.com