What would the U.S. economy look like without Apple?
It's a tantalizing question, given that Apple's gusher of profits seems to be having an outsized effect on the entire stock market. A buoyant earnings report, as Apple recently released, is capable of lifting the entire market higher, while worries about the company depress many other stocks.
Stock analysts are struggling to determine how important Apple really is. Their best guess: Really important. "Apple stock is now so significant that traders look at it as almost a separate index, a leading indicator for the stock market as a whole," Dick Green of Briefing Research wrote to clients following Apple's first-quarter earnings release. The firm's market value, roughly $570 billion, is more than twice that of Google or Microsoft. Its annual revenue exceeds the GDP of more than 150 countries.
It might seem worrisome that one company holds so much sway over the markets, but Apple isn't all that unusual. A recent report by investing firm UBS found that five other companies—AT&T, IBM, ExxonMobil, Microsoft, and General Electric--accounted for a bigger share of the total market value of all the firms in the S&P 500 stock index at some point in the past. And all five of them remained goliaths for far longer than Apple has been one.
Apple accounts for about 4.1 percent of the total value of the S&P 500. The biggest company ever, by that measure, was AT&T, which accounted for 7.2 percent of the S&P's value at the firm's peak size, in 1978. In the same year, IBM accounted for 7.1 percent of the S&P's value.
Those five dominant firms remained that way for a long time. The value of ExxonMobil has been above 3 percent of the total value of the S&P 500 for 207 months. IBM spent 167 months above that threshold, and GE, 110 months. So far, Apple has been above the 3 percent threshold for just seven months.
The upshot is that Apple still has a lot of room to grow, at least by historical standards. UBS, like many other analysts, believes that Apple has two main things going for it: It can still gain share in the market for smartphones, and its other huge source of profits, the iPad, is in a segment that's likely to grow rapidly for the foreseeable future.
What's odd about Apple is that it has grown so large mainly by selling consumer products that few of its customers can genuinely say are essential. The other 12 firms UBS examined mostly sold products that formed part of the infrastructure of a major industry, such as Exxon's oil or Microsoft's ubiquitous operating systems. The one firm on UBS's list that is most similar to Apple is Eastman Kodak, which got nearly as big as Apple in the 1970s—and declared bankruptcy earlier this year. That's one reason a few heretics think Apple may be inhabiting a bubble that could pop someday.
Despite its size, Apple's phenomenal success has less upside for the overall U.S. economy than its effect on the stock market might suggest. In General Motors' heyday, the old saying, more or less true, was that "what's good for General Motors is good for the country." You can't really say the same for Apple. The firm does employ about 40,000 Americans, the majority of them retail employees at Apple stores. It also supports a network of app developers and other folks who earn some part of their living thanks to Apple technology. But virtually everything Apple makes is built by foreigners overseas, which means Apple arguably has a smaller impact on the U.S. economy than a shrunken GM, chastened by bankruptcy, or many other companies.
Still, Apple has obviously become a marquee firm that's one of the few sources of consistently good economic news, in any economy. Maybe bigger really is better. The Apple juggernaut will probably give us a chance to find out.
Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.