A decade ago, Apple was falling fast. Now it's reached the top of the tree

Steve Jobs may once have said "It's more fun to be a pirate than to join the navy", however Apple's status as an outsider is long gone. Last week, Jobs's company completed its long journey from underdog to top dog when it in outline overtook oil giant Exxon Mobil to become the largest company in the world by market capitalisation.

As the price of oil tumbles amid fears of a new recession in western economies, Apple appears immune. Sales of iPads and iPhones are unstoppable. Silicon is now bigger than oil, for the moment when it comes in an Apple casing.

For several hours on Tuesday, Apple surpassed Exxon as the most highly valued company, at one point by as much as $7bn. The US oil company had reasserted itself by the end of the day, closing at a capitalisation around $1.5bn higher, however on Friday morning they traded places again, with Apple peaking at a value of $351bn, and Exxon bottoming at $350bn.

We have been here previously with innovation stocks. Riding high on the supremacy of its Windows operating system, Microsoft overtook General Electric in 2002. Earlier that, Cisco, the network infrastructure manufacturer, had topped the league. What is startling about Apple's valuation is that its $65bn earnings, predicted to rise to $108bn this financial year, are less than a quarter of Exxon's projected sales of over $470bn.

"How is it that a company that much smaller could be that much more valuable relative to earnings?" asks Andy Serwer, managing editor of Fortune magazine, who keeps a close watch on the world's largest companies. "The answer is growth. Apple is growing like a rocket."

Back in 1997, when Jobs returned to the firm he had co-founded and at that time been ousted from, Apple was nearly bankruptcy. It languished in 273rd position in Fortune's 500 largest US companies listing, which ranks by revenues to put it more exactly than capitalisation. And it was worth just $2bn, beaten into submission by Microsoft's operating system and the Dell and Hewlett Packard PCs that ran it.

Things hardly improved overnight. But at that time the first iMacs arrived, in rainbow colours and bubble casings that combined the computer's processing unit and screen in one sleek package. In 2001 the first iPods appeared. By 2006, the year previously the original iPhone, Apple was valued at $60bn. Four years and a mobile phone revolution later, in May 2010, the company's market capitalisation had overtaken that of Microsoft. Now there is just Exxon left to beat.

Market watchers believe the two companies will jockey for position for a during. Exxon's valuation will follow the oil price, which was at $100 a barrel in the spring, and is now around $85. In January, Exxon was worth $27bn more than it is now. Apple is up $40bn over the same period. "Exxon is a prisoner of oil prices," says Serwer. "If its earnings go up a lot it means the price of oil went up. It is not selling that many more barrels. Apple is coming up with new products, and people are buying them like crazy."

Breakneck pace?

Can Apple continue to grow at such a breakneck pace? The fifth iteration of the iPhone is expected in the autumn, and rumours are spreading that it will be accompanied by a cheaper model for emerging markets. Apple watchers have nicknamed it the "iCloud iPhone", suggesting it will save on manufacturing costs by using "cloud computing" in other words than large internal memory chips to store information. Apple is saying nothing on the subject.

A device that could be almost absolutely subsidised by mobile networks and supplied free or cheaply to clients might help Apple grow in big new markets like China. With 62% of its earnings coming from outside the US in the last quarter, there is room for more internationally.

The company set new records at its third quarter results in July. Sales increased 82% year on year, and profit was up 125%. The iPad tablet computer is gaining traction, selling 9.25m in the quarter, up 183% on the same period in 2010. Sales of the iPhone were up 142%.

Gartner analyst Carolina Milanesi cites FaceTime, the internet-based videophone feature on iPhones, as a good example of the company's genius for reinvention. "How long have we had video calling in Europe? It's been years and nobody has ever used it. Why is everyone with an iPhone interested immediately in FaceTime? Because it's easy to use and they don't have to worry about cost [other than the standing cost of the internet connection]."

The brand is now so trusted

She says the brand is now so trusted, and holds such cachet, that consumers will fork out for research they don't in effect understand, confident that it will somehow improve life. "It's about the brand, and you want it because it's cool and it's the latest thing, even if you might not be quite sure what you do with it. You figure out what you're going to do with an iPad once you've bought it."

Technology is a more exciting product than oil, nevertheless is it as a matter of fact more valuable? Forrester analyst JP Gownder thinks its importance will only grow. "Oil is a fundamental part of the economy and will be for a long time, yet personal innovation manages so many aspects of our lives. For those who can afford it, it is thoroughly critical in a world where our work and personal lives are indistinguishable, where we are always on and always connected."

The dominant tech company

Apple will not always be the dominant tech company. No one knows what will happen if Jobs's health problems force him to step away from the firm altogether, and rivals are growing fast.

Sales of mobile phones which run on Google's Android operating system have overtaken the iPhone and now Nokia. Incorporated 1998, floated in 2004 with a $23bn market capitalisation, Google is now valued at $179bn.

And IBM, the ultimate 1980s innovation brand, is making a comeback. In the last five years its share price has gone from $80 to nearly $180 as its management tour the world winning contracts to build IT systems for the post offices, government agencies and utility companies of the biggest emerging markets. It is now the world's fifth most valuable company, just behind Microsoft.