Maybe Investors' Exuberance Over Apple *Is* Rational

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It's hard to look at a company that investors value at $630 billion and not think that irrational exuberance is propping up its share price. But a new analysis by Reuters shows that, at least compared with Microsoft, Apple's not overvalued. In fact, the company's price-to-earnings ratio has, generally speaking, dropped as its market cap grew.

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Reuters

As Felix Salmon explains:

What this says to me is that the market in Apple shares looks a lot more rational than the market in Microsoft shares. Investors will pay huge multiples for Apple shares when the company looks cheap, but not when the company looks expensive. When Apple breaks the half-trillion barrier, that's despite the fact that its p/e ratio is low; when Microsoft breaks that barrier, it's because its p/e ratio is high.
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Alexis C. Madrigal

Alexis Madrigal is the deputy editor of TheAtlantic.com. He's the author of Powering the Dream: The History and Promise of Green Technology. More

The New York Observer has called Madrigal "for all intents and purposes, the perfect modern reporter." He co-founded Longshot magazine, a high-speed media experiment that garnered attention from The New York Times, The Wall Street Journal, and the BBC. While at Wired.com, he built Wired Science into one of the most popular blogs in the world. The site was nominated for best magazine blog by the MPA and best science website in the 2009 Webby Awards. He also co-founded Haiti ReWired, a groundbreaking community dedicated to the discussion of technology, infrastructure, and the future of Haiti.

He's spoken at Stanford, CalTech, Berkeley, SXSW, E3, and the National Renewable Energy Laboratory, and his writing was anthologized in Best Technology Writing 2010 (Yale University Press).

Madrigal is a visiting scholar at the University of California at Berkeley's Office for the History of Science and Technology. Born in Mexico City, he grew up in the exurbs north of Portland, Oregon, and now lives in Oakland.

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