At the value Icahn is suggesting, Apple would be a nearly $1.5 trillion company. Monday's letter, which was also signed by Brett Icahn and David Schechter, called for accelerated Apple buybacks.
The investor said his team believes that Apple is poised to enter and "dominate" two new product categories: The company will enter television next year, and the automobile market by 2020, he said.
These new categories would have a combined addressable market of $2.2 trillion, he said, adding that many investors do not appear to be factoring this growth into current valuations.
It is our belief that large institutional investors, Wall Street analysts and the news media alike continue to misunderstand Apple and generally fail to value Apple's net cash separately from its business, fail to adjust earnings to reflect Apple's real cash tax rate, fail to recognize the growth prospects of Apple entering new categories, and fail to recognize that Apple will maintain pricing and margins, despite significant evidence to the contrary. Collectively, these failures have caused Apple's earnings multiple to stay irrationally discounted, in our view.
This valuation error, he alleged, could lead to a "de facto short squeeze," wherein underweight funds see the need to buy up more shares.