On Sept. 1, Apple (AAPL +1.63%) gets its first new CEO in 15 years. John Ternus, the company’s head of hardware engineering and a 25-year Apple veteran, takes over from Tim Cook, who becomes executive chairman of the board.
Apple announced the plan in April, and the board approved it unanimously. It is a planned handoff to someone from inside the company, just as large tech firms typically do.
The stock, meanwhile, enters the change near record territory. Apple’s market cap approaches $4.6 trillion as of this writing, over 30% above where it was a year ago, and shares sit about 9% off the all-time high they set this summer.
So what does a moment like this typically do to a stock? Since 2011, four planned CEO handoffs with internal promotions at U.S. megacap tech companies have a completed first year to judge. A fifth is too recent to qualify: Oracle promoted two in-house executives to co-CEO last September, so its first year is not complete. The four on record have almost nothing in common.
Image source: Apple.
Four handoffs, four different years
The most famous is Apple’s own. Steve Jobs stepped down as CEO on Aug. 24, 2011, handing the post to Tim Cook, the company’s head of operations. Over the following 12 months, Apple stock rose about 76%.
Microsoft named Satya Nadella, an in-house veteran, CEO on Feb. 4, 2014. The stock rose about 15% over the following 12 months (a good year, though hardly a preview of the cloud-driven streak that followed).
Alphabet promoted Sundar Pichai, who already ran Google, to CEO of the parent company on Dec. 3, 2019. Twelve months later, the stock had risen about 41%, even with the 2020 pandemic crash falling in the middle of that window.
And then there is the outlier case. Amazon founder Jeff Bezos handed the CEO post to veteran cloud chief Andy Jassy on July 5, 2021. Over the following 12 months, Amazon shares fell about 38%.
Average those four first years and you get a gain of about 24%. But the average hides the point. Such scattered results — a deep loss, a modest year, and two large gains — suggest that the handoffs themselves did not drive them.
The handoff was never the variable
Look closely at the four cases, and what really decided each first year was the starting point the new CEO inherited, not the person.
Cook took over a stock trading near 15 times earnings just as the iPhone was entering its most pronounced growth years. Nadella inherited a similar price, about 14 times earnings, with much of Microsoft‘s transformation to the cloud still ahead. And Pichai took Alphabet at about 26 times earnings with digital advertising still compounding.
Jassy, by contrast, took Amazon just days from what was then its all-time high, at a price near 70 times earnings, right as pandemic-era e-commerce growth was stalling. The stock’s terrible first year under Jassy seems to have had little to do with him. It was the price and the cycle, unwinding at the same time.
In each case, the market spent the first year repricing the business the new CEO received. None of the four stocks seems to have moved much because of the succession itself — they were planned transitions to insiders the market already knew.
Ternus inherits a good hand at a high price
Apple’s starting point today sits somewhere between the comfortable ones and Amazon’s. At about 36 times earnings, the stock is more than twice as expensive as the one Cook inherited. And the market value rise of more than 30% over the past 12 months already covers both the succession announcement and a streak of good results. Easy gains, put another way, may already be behind the stock.
Today’s Change
Current Price
However, 36 times earnings is also nowhere near Amazon’s multiple of about 70 times earnings during its handoff. And Apple enters the change with momentum instead of a stall, with a new generation of iPhone likely this fall and a services business that continues to compound.
After a decade covering large tech stocks, I can’t think of a planned megacap succession the market actually feared, and the four first years above say it was right not to. History says the handoff itself will probably be a non-event. It also says that the first-year return will be decided by what Ternus inherited — the iPhone cycle, artificial intelligence (AI) features, and a demanding price.
For investors who already own the stock, the transition is not a reason to sell. I’d keep holding Apple through it. I just wouldn’t expect Cook’s version of the first year at today’s valuation.
