Munster: How Apple becomes the first $1 trillion company


Philip Elmer-DeWitt is a senior editor at Fortune.

Its market cap today is $577 billion. Where do the next $400-plus billion come from? 

In a note to clients issued early Tuesday, Piper Jaffray's Gene Munster raised his Q2 iPhone estimate (to 33 million), set a new 12-month price target ($910 per share) and -- most provocatively -- laid out a roadmap for Apple's (aapl) market capitalization to go from $576.79 billion as of Monday's close to $1 trillion by 2014.

That would be a first. The previous record for the largest market cap (price per share times number of shares) ever reached by a public company was $619 billion, set by Microsoft (msft) in 1999.

So where does Apple get the next $400-plus billion?

The short answer: Half from more money pouring into tech stocks and half from money continuing to drain from the market cap of Apple's major competitors, who have roughly $1 trillion between them.

As the chart above shows, in the past four years, Apple's market cap increased by more than $390 billion while that of six core competitors -- Research in Motion (rimm), Nokia (nok), Sony (sne), Dell (dell) Hewlett-Packard (hpq) and Microsoft -- decreased by more than $400 billion.

Turning to the next three years (2012-2014), Munster writes:

First, we believe dollars invested in US technology companies will increase ~5% y/y on average for the next three years (CY12-CY14). By comparison, dollars invested in US tech companies were up 9% y/y in 2011. Therefore, the tech sector will add ~$390 billion in market cap through 2014. We assume Apple could capture half of this market cap (from 85% in the 4 years prior).

Second, the companies we consider to be the 10 most relevant competitors to Apple (Samsung, HTC, RIMM, NOK, SNE, DELL, HP, MSFT, INTC, GOOG) represent nearly $1 trillion in market cap today. We believe 20% of that value, or ~$200 billion could shift to Apple through 2014. Thus there is potential for Apple to repeat history and add another $400 billion to its market cap. At a $1,000 share price (roughly $1 trillion in market cap) Apple would represent 26% of the total US tech market cap from 17% today.

Ironically, Munster believes that the impact of Apple's dividend -- which for years was touted as the trigger for growth funds to finally start putting money into Apple -- will be relatively small:

If we assume that 25% of large cap tech income funds buy AAPL (which we estimate to be about $150 billion), that would add around $40 billion to Apple’s market cap or 10% of the total market cap increase needed to get to a $1,000 share price. That said, we believe many income funds have already bought shares of AAPL, so the more likely impact is closer to a 5% benefit.

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