Apple Hits New All-Time Highs in Wake of iPad3 Announcement

Shares of Apple, Inc. AAPL are trading at new all-time high levels on Tuesday after the company announced a major product event scheduled for March 7. Reports indicate that the technology giant will unveil iPad 3 at the event. “We have something you really have to see. And touch,” Apple said today in an invitation, which displays a picture of an iPad screen. The new model is expected to feature a high-definition display, an upgraded processor, and run on 4G networks. To date, Apple has sold more than 55 million iPads and generated at least $34.5 billion in revenue from the tablet device. In typical Apple fashion, the company basically created the tablet market back in 2010, and has subsequently come to dominate the high-growth technology segment with the iPad. The next generation iPad is expected to be compatible with LTE, or Long Term Evolution, which is the new standard in the wireless networking arena. There is some debate over what kind of chip the next generation iPad will contain. Numerous media reports have said that the device will contain an A6 quad-core chip as opposed to a dual-core chip which has been used in previous iterations of the iPad. Other reports, however, indicate that the company is going to stick with an upgraded dual-core chip for the iPad 3. According to iPad3newsblog.com, there may be a number of explanations for the various reports. They contend that Apple is working with both a dual-core chip known as A5X and a quad-core called A-6. The site reports that "Apple may have developed both chips simultaneously to see which is better suited for iPad 3. Secondly. the A6 processor is for the iPad 3 while the A5X chip may be for the rumored Apple TV update, the iPhone 5 or another iOS device. Thirdly, The A5X is for the iPad 2 that Apple plans to sell at a lower price while the A6 will be for the higher priced iPad 3. In the end, the A5X could turn out to be for the mini-iPad." Since the use of a quad-core chip in the iPad 3 has been widely reported, there could be some disappointment from both the market as well as consumers if the device subsequently only contains the upgraded dual-core A5X model. In addition to excitement over 4G LTE and a potential quad-core processor, the internet is being inundated with rumors about a "retina display" screen which would double the device's revolution to 2,048 x 1,536 versus the iPad 2. Another rumor that is making the rounds is that the iPad 3 is going to be priced higher than previous generations of the model. The figures currently being thrown around are between $70 and $80 per price tier for the iPad 3, but this is largely conjecture at this point. The source for this rumor was a Weibo poster in China - and it is unclear how Chinese internet users would have gained access to Apple's U.S. pricing data. The market is showing a fair amount of enthusiasm in the wake of the announcement from the Cupertino, California company. Apple shares are trading at new all-time highs on Tuesday, gaining 1.60% to $534.18. Since breaking out of a trading range between $350 and $400 at the beginning of January, AAPL shares have been on an absolute tear. Heading into the March 7 product event, traders are likely wondering if the iPad 3 announcement isn't already priced into the stock. A convincing argument could be made that AAPL's recent run has fully priced in iPad 3 along with continued rumors about a "revolutionary" iTV, but on a valuation basis, shares remain cheap. The stock trades at a trailing P/E of 15.21, a forward P/E of 11.26, and a PEG ratio of 0.64. These metrics remain extremely attractive, but it would not be a surprise to see the stock pullback as March 7 approaches and even fall on the day of the announcement as traders "sell the news" after buying on the initial rumors. Apple has followed this pattern fairly consistently in the past. In sum, valuation remains extremely attractive, but the stock may be overextended on a technical basis and usually pulls back in the wake of product announcement run-ups.