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Apple's (NASDAQ:AAPL) next stock price hurdle: $663.15. At this price, Apple would have a market capitalization of $618.9B, tying it with a record set by Microsoft (NASDAQ:MSFT) in 1999 for the largest market capitalization of a publicly traded company. That's just a 10% increase from today's prices and only 20 points higher than its all time high set in April.

This time, it's different

When Microsoft set the record, it was at the height of the internet bull market of the 1990s. Almost everything was up. The S&P 500 was well above 1400, a level still above today's despite the 12 years intervening. At the time, Microsoft had a price to earnings ratio in excess of 60 indicating a large contributing factor to Microsoft's record was overvaluation. Despite strong earnings growth in the subsequent years, Microsoft's stock has not performed well. It's down 50% from the $60 share price that set the record (adjusted for split).

That's where the difference lies with Apple. Like Microsoft, Apple has had a meteoric rise to become the largest publicly traded company in the world. But unlike Microsoft, "irrational exuberance" seems to have had a much smaller role in Apple's rise. Apple currently boasts a trailing price to earnings ratio of 14.9 and a forward one of 11.28. If (or when) Apple breaks the record, it will be without the lofty valuations enjoyed by the previous record setter.

Challenges Ahead

Although Apple has performed exceptionally to become the largest publicly traded company, it still faces an intensely competitive environment. One of the main concerns is Apple's dependence upon the iPhone. Last quarter, the iPhone accounted for more than 50% of Apple's revenue. This is an area in which Apple may be facing increased competition going forward.

Microsoft is set to release the latest version of its operating system later this year. The new system is designed to work better on phones and tablets than past versions of Windows. This is a direct attempt at taking market share from Apple. Although past attempts by Microsoft into this market have failed miserably, Microsoft has the resources to keep trying until they get it right. It will be interesting to see how the latest attempt is received by the market.

Additional competition will also come from Amazon (NASDAQ:AMZN). Though the timing is still unknown, Amazon is expected to release a smartphone of its own to compete directly with Apple's iPhone. Amazon's strategy with its tablet, the Kindle Fire, has been to heavily discount the hardware and focus on selling content through the tablet to generate profits. If Amazon employs a similar strategy with its new phone, it may put considerable price pressure on Apple.

Apple will also face the continued pressure from Google's (NASDAQ:GOOG) Android system which continues to hold the largest market share in the smart phone industry.

Summary

Apple is on the cusp of setting an important psychological record: the largest market capitalization of a publicly traded company in history. There are still challenges ahead, including an increasingly competitive environment. Apple has done well in this environment in the past providing reason to believe it will do well in the future, but that is yet to be seen.

One thing going for Apple investors is its reasonable valuation. It is unlikely that Apple will face a situation like Microsoft's in which it grows earnings, but the stock falls anyways due to overvaluation. If Apple is able to continue its earnings growth, the stock price will likely follow.

Investors should watch closely for Apple's earnings report due to come out on July 24th. If Apple releases exceptional results, the record could fall as soon as this month.

Source: Apple's Next Hurdle