The National - Saudi Aramco narrows gap with Apple to become world's most valuable company

Vijay Valecha, Special to The National May 10, 2022

Saudi Aramco, the world's largest oil-exporting company, is narrowing the market capitalisation gap with iPhone maker Apple to become the world’s most valuable company.

Aramco was trading at 45.95 Saudi riyals ($12.25) a share on Tuesday, giving it a market value of 9.19 trillion riyals ($2.45tn). It briefly surpassed the Cupertino-based technology major's market valuation during the day. Aramco's shares have jumped almost 30 per cent since January 2.

Apple shares closed about 1.6 per cent higher on Tuesday at $154.51 a share, giving it a $2.5tn market cap. However, the company's shares have dropped nearly 16 per cent since the start of the year.

“Apple stock has held up better than most peers, it is still subject to the great tech multiple compression, which has been witnessed as a result of central bank tightening and ramping inflation," Neil Campling, co-head of Mirabaud Securities' Global Thematic Group, told The National.

"Investors will now worry if consumers’ belt tightening will lead to lower appetite to buy the ultimate consumer accessory, the iPhone.”

Aramco’s market value has been helped by the technology sell-off and the surge in oil prices. Crude prices are up about 60 per cent since last year on higher demand and supply concerns due to limited capacity of producing countries. In April, both global benchmarks, Brent and the West Texas Intermediate, posted their fifth straight monthly gain.

“Oil prices remain buoyed since the EU proposed a phased embargo on Russian oil. However, the approval has been delayed amid requests from Eastern European members for exemptions and concessions,” Vijay Valecha, chief investment officer at UAE-based financial consultancy Century Financial told The National.

“Once the bloc confirms the ban on Russian oil in its sixth sanctions package, the European countries will resort to the Middle East to meet their demand for oil … therefore, the market participants are anticipating the embargo and are in turn siding with Aramco.”

Owing to the Ukraine war-related trade and production disruptions, the price of Brent — the global benchmark for two thirds of the world's oil — is expected to average $100 a barrel this year, its highest level since 2013, after increasing more than 40 per cent annually, according to the World Bank.

Some investment banks estimate oil prices will average between $120 to $135 a barrel this year.

Saudi Aramco's market cap has rallied to $2.45tn from $1.90tn since the start of the year, while Apple's valuation has fallen to $2.5tn from $2.85tn.

Apple's stock-market value briefly rose above $3tn on January 3, shattering yet another record, but it failed to hold above the level until the end of the trading day.

Saudi Aramco is the only non-American company in the top 10 market cap rankings. It is followed by Microsoft, Alphabet, Amazon, Tesla, Berkshire Hathaway, Meta, Johnson & Johnson and United Health.

Last year, Microsoft briefly became the most valuable company in the world when Apple missed estimates. But Apple soon reclaimed its top position.

Aramco’s 2021 full-year net profit more than doubled to $110 billion, driven by a 67 per cent surge in oil prices in 2021 as easing pandemic-related restrictions and improving global economic growth resulted in petroleum demand overtaking supply.

Aramco listed its shares on the Saudi Stock Exchange, Tadawul, in 2019, raising $25.6bn and later selling more shares, boosting the total to $29.4bn.

The company's shares jumped 10 per cent as it began trading on December 11, 2019, pushing its market value to $1.88tn and anchoring it as the largest public offering globally.

“Saudi Aramco shares are becoming a favourite investment for many traders as the outlook for oil prices remains well supported for the next few years … the war in Ukraine has led to a big shift away from Russian energy and that will provide some additional crude demand for the Saudis,” Edward Moya, a senior market analyst at Oanda, told The National.

“Due to the lack of investment in new wells during the [Covid-19] pandemic, the Saudis are nicely positioned to supply energy markets when massive shortfalls emerge over the next couple of years. The Saudis will be able to ramp up production and benefit from elevated oil prices.”

In addition to the Ukraine conflict, oil price concerns about demand in China as well as tighter US crude inventories have led to a rally in oil prices. China, the world's largest importer of oil, has introduced movement restrictions in its largest city, Shanghai, as well as in the capital Beijing due to an outbreak of Covid-19.