Why Apple Isn't Finished Yet

iPhone 4 and iPad display
Getty Images
iPhone 4 and iPad display

I have been listening to debates on our air about Apple all morning, particularly about the fact that it is now has the largest market cap ever. The debate has been: is Apple worth it? Can it keep up the innovation?

On the surface, the stock is having a tough day — a rare downgrade has caused a reversal, and the stock has given up almost all of its gains from yesterday on very heavy volume.

I rarely editorialize on individual stocks, but since I have been a rabid Apple user for a decade I do have a strong opinion, and the answer is, yes, they can keep going.

First, one argument against AAPL is its sheer size. Very few companies have ever had market caps over $500 billion, let alone $600 billion:

Exxon Mobil ,

General Electric ,

Intel ,

Microsoft and

Cisco .

The argument is that these companies (with the exception of XOM) eventually fell dramatically, why shouldn't it happen to AAPL?

There are several reasons:

1) Apple is not overpriced. Apple is trading at about 11 times forward earnings, at a time when the S&P 500 is trading at almost 14 times forward earnings. According to Topeka Capital Markets, the three tech companies (INTC, MSFT and CSCO) were trading at an average P/E of over 80 times earnings when they passed the $500 billion level.

2) Apple has plenty of room to increase its share of the products it sells. Here's the stats:

Apple share of the market for:

PCs 4.7%

Mobile phones 6.4%

Source: IDC/Topeka Capital

Yes, it has 68 percent of the tablet market, but it invented that category and it is now facing stiff competition.

Compare that to the share of the market that the other $500 billion market cap tech companies had at their height:

Microsoft share of PC operating systems 90%

Intel share of PC processor market 80%

Cisco share of networking market 70%

Get it? These other guys already had thoroughly penetrated their markets when they hit those big market caps. They had nowhere to go but down. That is not the case with AAPL.

3) Apple continuously reinvents its products and is growing into new categories. The iPhone 5 is the gift that keeps on giving; millions of Apple users like myself will reflexively go out and buy it. They are working on an iPad "mini."

And they may be on the verge of cracking the TV conundrum. They have tried for years to get a foothold in TV, and have fallen short. But word that they are now working on a set-top box that can deliver a cable feed, rather than a full-scale TV, may be just the right approach. Forget the hardware, create software that is linked to iTunes.

The problem: it's not clear they can get buy-in from cable companies. But just wait until the numbers get worse, and cable companies realize they are losing subscribers faster than they thought.

This would integrate the iPad, the iPhone and Macs with iTunes...and cable TV content. Watching anything you want on your iPhone? Heaven!

—By CNBC’s Bob Pisani

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