By Philip Elmer-DeWitt
October 7, 2012

FORTUNE — To understand what the chart at right is trying tell us it really pays to follow the logic laid out, step by step, by Asymco‘s Horace Dediu in a post he wrote last Thursday. But here’s the gist of it:

  • Apple’s (AAPL) share price (the jagged red line at right) tends to track the revenue from sales of the company’s mobile devices — primarily iPhones and iPads (grey bars and light blue bars, respectively)
  • Sales of iPhones and iPads in any quarter tend to track how much Apple spent on machinery and equipment — so called CapEx — in the previous quarter
  • We know ahead of time roughly how much Apple will spend on machinery in any given quarter because the company budgets CapEx a year in advance
  • Dediu estimates that in fiscal Q4, the quarter that just ended, Apple’s CapEx may have been as high as $3 billion, roughly double what it spent in Q2.
  • If history is any guide, we should see a significant increase in iPhone and iPad production in the next two quarters — and a corresponding increase in Apple’s share price

“It takes money to make money,” Dediu concludes. “The relationship seems to be that $1.5 billion of CapEx per quarter yields a share price of $800. With spending reaching $3 billion per quarter will the share price reflect a similar ratio?”

If that went by too quickly, you should let Dediu take you through it step by step. See Using Capital Expenditures to predict Apple’s share price.

DISCLOSURE: I was a guest on Dediu’s Critical Path podcast last week, where we spent an hour discussing Apple, Steve Jobs and the media. See There Were Too Many Newspapers in New York.

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