What Would Apple Stock Be Worth Without A Profitable Business – Morphing Into Collector Markets

Summary:

• Financial markets may be morphing into collector markets, where some securities hold value beyond traditional cash returns and business fundamentals. Apple may be one of those.
• As value investors exit, the makeup of Apple’s shareholder base makes the stock even less prone to selloffs on business setbacks.
• I don’t think Apple shares make good economic sense, and I don’t think they will deliver good long-term economic returns.
• However, a liquidity-supported market, along with AAPL’s appeal as a collectible, seems likely to drive the share price higher in 2025.

As shares of market bellwether Apple Inc. (NASDAQ:AAPL) broke above $250 recently, I almost entered the Comment boards to ask, “Who’s buying low-growth Apple above $250?“. I didn’t post that, partially to avoid mockery (I’ve been bearish on Apple), but it’s occurred to me that the answer to this question would probably have been “almost everybody”.

I had an “Aha!” moment. While it’s certain to be a controversial view, and I can’t say for sure whether it’s true, I think it’s worth debating whether portions of financial markets have quasi-morphed into collector markets.

This mindset helps to inform my view on what 2025 might bring for major stocks such as Apple. My overall market view logically doesn’t waiver from that significantly.

First, A Visit To Traditional Finance, & The Question Of What Constitutes Value

Though full of sometimes complex formulas, traditional finance is built on a very simple premise: the value of expected returns. It’s a reasonable and logical standard and forms the heart of business finance. In the business world, if you’re responsible for a project and are asked, “What’s the IRR?”, you better have an answer.

For an industrial firm considering a new factory, an ocean shipper evaluating the construction of a new vessel, or a commodities firm thinking about bringing a new mine into production, the decision will (somewhat obviously) be made by evaluating expected after-tax cashflows. If the resulting anticipated cashflows weren’t attractive enough relative to the cost of the investment, the project would be shelved.

That same concept of IRR (Internal Rate of Return) was naturally adopted by investors in their evaluation of stocks. Back in the days when almost all public companies sought to graduate to dividend payers, the closely related Dividend Discount Model (DDM) was widely used by investors to assess just how much future cash flows to investors were worth in today’s dollars, risk-adjusted. It’s a good, academic, financially sensible exercise. If we’re investing cash, we want cash back. We don’t want to pay cash for something that doesn’t pay back.

Most veterans of the stock market, such as Warren Buffett, continue to apply traditional principles in their selection of investments. There should be comfort and success in doing so, at least for those who analyze wisely.

Skipping to the collectibles market – this market has always been something completely different. Values of collectibles are driven by something other than business and cashflows – it could be status, beauty, scarcity, a combination, or something else.

With that setup, let’s talk about the Green Bay Packers (no really).

Green Bay Packers Stock Certificates

A friend of mine swears by the belief that everything begins and ends with the Green Bay Packers NFL team. There would be no air in the sky nor water in the sea if the Packers didn’t exist. He proudly displays his Green Bay Packers, Inc. stock certificate on a wall in his home, which costs $300 per share.

For investors asking the next obvious question, the answer is “No”.

“Die-hard Packer fans might be wondering about the value of Green Bay Packers stock. Shareholders don’t get any financial benefit since their shares can’t be appreciated, there isn’t a dividend, and they can’t be traded. There isn’t any input from shareholders on team operations either. Also, ownership is capped at 200 shares per individual. “

-Source: MarketRealist

The 200 share limit per person is likely the football club’s attempt to limit the litigation risk of any potential shareholder claiming that they’re owed ~hundreds of thousands of dollars following the team’s success. Yes, Green Bay Packers stock is a bona fide collectible. Shareholders own nothing — no equity rights, no dividends, and the cash flow is one-directional: outbound. Indeed, people are shelling out cash for the shares with no expected (in fact, no possible, unless you count paper recycling) returns.

If Green Bay Packers stock traded on the NYSE or Nasdaq, or existed as a cryptocurrency, I suspect there’s a good chance it would have soared in value in recent years (N.B. – the team has a 10-4 record so far this season), and be worth far greater than what football fans paid, even though there’s guaranteed to be no tangible underlying value.

Readers who already know where I’m going with this should read on, nonetheless, as I eventually ask an intriguing question about Apple stock.

Learning From Bitcoin and MicroStrategy

I wanted to speak first about MicroStrategy, and its recent ascension into the Nasdaq 100, but it’s probably better to put the horse before the cart.

Bitcoin USD (BTC-USD) obviously needs no introduction. While blockchain may offer trust and security benefits (beyond simple fascination), both bulls and bears should likely agree that Bitcoin is the premiere example of an asset that will generate no cash returns. There’s no business, no business returns, no potential dividend, and no tangible rights given to the owners here. While it’s possible to spend Bitcoin in the same way that retirees spend their dividend income, the Bitcoin wealth isn’t coming from a recurring business. It appears that there’s no longer a prerequisite for an underlying business at the heart of capital markets success, and Bitcoin has risen about 150% thus far in 2024 (as my friend reminded me before his road trip to a Bitcoin $100k party).

MicroStrategy Incorporated (MSTR), whose success is truly only as a holder of Bitcoin, might be the first company in history to become part of a major stock index while neither running a significant business nor holding business assets of significance. One could try to claim the same about a real estate holding company, but even if such a company’s only aim was to sell property at a profit, those underlying properties would have income-generating qualities nonetheless. With MSTR, aside from its insignificant (relative to valuation) software business, the assets it holds (Bitcoin) have no income-generating properties. I don’t think anybody disagrees with that, and this represents a very unique situation in the long history of equity markets.

There are a lot of similarities between the above 2 assets and what people have traditionally labeled as collectibles. Yet, Bitcoin and MicroStrategy have not just infiltrated, but succeeded in traditional capital markets. MicroStrategy, of course, trades for approximately twice the value of the Bitcoin in holds, raising entirely another question.

With No Profits, What Would Apple Stock Be Worth?

There’s an old saying that gets passed down from generation to generation of investors, and that famous statement is:

“This isn’t your grandfather’s market”

In effect, it’s never your grandfather’s market, even if he isn’t here to confirm that.

Without pretending to know the answer (I don’t), I believe I ask a very interesting question above: What would Apple Inc. (AAPL) stock be worth if profits not only stopped growing, but dried up altogether?

I know what my grandfather would say. His answer would be, “zero, or liquidation value of assets“. However, in today’s markets, I’ve finally realized that I don’t actually have any confidence in the answer to that question, unlike my grandfather would have.

I think it’s plausible to believe that Apple, and perhaps other stocks, have developed very significant value as collectibles, not unlike Green Bay Packer shares. While it’s a very hypothetical question, if, by tomorrow:

1. Apple’s profits were to become zilch,
2. The company ceased paying dividends.
3. The company pronounced negligible business prospects.

…it isn’t impossible that there’d be a continued flurry of AAPL buyers above $200, even absent prospects for cash returns (at least in this market). We’ll probably never know for sure, but it seems like a worthwhile question to ponder.

In essence, I believe it’s possible that people are already, or maybe in the future, buying stocks like Apple without little/no expectation of economically positive cash returns. That’s not entirely the same as Green Bay Packers shares, but quite a lot more similar than we may currently assume.

As it stands in reality, Apple currently trades near $250/share and about 41x TTM GAAP P/E despite,

• low-to-mid-single digit growth expectations,
• a slimming technology leadership,
• a notable lack of innovation,
• market share pressures in key markets (notably China),
• the loss of Warren Buffett’s (~grandfather) support as Berkshire has dumped a majority of its shares,
• real economic risks from potential tariffs (see Bernstein and Jefferies warnings).

A year from now I might be saying that Apple’s trading at $400/share and 60x P/E. That’s because Apple (and potentially other celebrity stocks) don’t need value investors like Buffett for their stock prices to rise. Some companies depend on capital from such investors, but not a company like Apple. Consider: How much would Buffett have paid for the duct-taped banana? Not much because as far as I know, he doesn’t invest in collectibles.

Negative news, of varying significance, does periodically temporarily dent AAPL’s valuation, but new buyers quickly emerge to fill the gap and push the stock higher again. While analysts (Only 1 of the past 8 Seeking Alpha analyst ratings on AAPL have been positive) pause and scrutinize the company’s value, it’s not clear that investors (at large) actually do. They might just be hitting the BUY button instinctively, on Apple, the index, or other stocks.

The power of retail investors and their mindsets, no matter how logical or illogical old-school financial veterans view them, cannot be underestimated. Institutional investors learned that the hard way during the early 2021 short squeeze.

I’m not insinuating that there’s no possible way for Apple’s business to generate long-term economic returns to support its current share price. Rather, what I’m suggesting is that business economics may not matter as much as we’ve traditionally grown to think, for some stocks.

I, and other old-school financial professionals, may be completely wrong about our bearish views of Apple. Deep-diving the company’s business may not matter if enough capital (~people controlling that capital) doesn’t care. Furthermore, as value investors move out, a larger and larger and larger proportion of Apple becomes owned by everyone else (~non-value investors). The shareholders that remain are likely less attentive to changes in fundamentals.

I was pretty critical of Apple’s decision to enact a historic $110 billion stock buyback program back in May. I questioned the financial sense of doing so, from a business perspective. However, one thing that the buybacks are certainly accomplishing is increasing the scarcity of shares. Scarcity is a key trait in the value of collectibles (I’m thinking about my 1991 hockey card collection right now; a year during which hockey cards became mass-produced. I have some great rookie cards, but they aren’t scarce enough to be worth much).

In an environment (let’s run with it) where there is a potential “X” amount of buying interest for Apple shares, almost constantly, reducing the supply of shares available may simply automatically cause the stock price to rise. I don’t think it’s a stretch to think we’re observing some of that already.

Conclusions And 2025 Outlook

I do believe that collectivity has infiltrated stock markets, at least to some degree, although it’s difficult to prove, especially its potential breadth. But if there’s truth to its existence, I believe that AAPL shares would be first in line for such treatment. Apple is more widely recognized and trusted than a company like NVIDIA Corporation (NVDA), especially amongst less knowledgeable investors. The company’s popularity could almost make investment gains self-fulfilling in certain environments, and it doesn’t hurt that the stock is the biggest holding in large indices (hence automatic ETF buying).

One scenario where collectible markets would suffer, and where Apple shares could fall significantly, is in a situation where cash liquidity is tight. However, 2025 doesn’t seem likely to deliver any reductions in liquidity. The Trump Administration would be loathe to the idea of negative markets next year and is likely to support liquidity to the degree that is necessary for stocks to rise.

It doesn’t at all hurt that the power leaders of trillion-dollar companies are likely to have Trump’s ear, and that includes Apple’s Tim Cook who recently had dinner with the U.S. President-elect. Specifically on the issue of tariffs, I imagine that Trump will put effort into ensuring America’s premiere company doesn’t fall victim to these.

AAPL Price Target (base case for 2025)

Do I believe there’s long-term economic sensibility in Apple’s current valuation – No, I do not. But I also don’t believe that 2025 is the year that will bring sensibility and tough economic reckoning to the masses. Therefore, I think further multiple expansion of AAPL stock is not only possible next year, but more likely than not.

S&P 500 earnings estimates look ambitious for 2025, but I think Apple could come close to achieving the analyst consensus estimate of $7.39. That would represent less than 10% earnings growth, and I’m hard-pressed to see earnings growth accelerate further in 2026, especially given the long-term business-specific risks that already concern me. Therefore, the 2026 EPS consensus for Apple of $8.31 seems very rich. Against a more conservative $7.95 EPS estimate for 2026, a forward P/E expansion to ~36x could potentially bring AAPL shares towards the mid-$280 range next year.

A ~10% increase in the value of Apple stock is my highest probability scenario for next year, even though it’s not something I would personally bet on. Even a small possibility of a crash scenario would invalidate a decision to be long Apple on a weighted scenario basis.

Risks

The primary risk to Apple stock rising next year would be major economic dislocations that injure sentiment, cause tighter liquidity, and force investors to consider the economic value of their holdings. But I don’t expect such forces to hit the markets until 2026 or later. Until then, collectors may continue their vocations through whatever instruments they utilize, and that may include Apple stock.

Should sentiment deteriorate significantly, however, it’s difficult to predict at what point value investors would once again step in. Even if AAPL shares were cut fully in half (-50%) from today, they’d still trade at a ~17 multiple, which is quite a bit higher than where low-growth stocks normally bottom.

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Analyst’s Disclosure: I/we have a beneficial short position in the shares of AAPL either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

My bearish positioning in Apple reflects long-term business concerns which I don't expect to harm the stock's potential in 2025

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