Microsoft on Thursday briefly overtook Apple as the world’s most valuable company for the first time since 2021 after the iPhone maker’s shares made a weak start to the year on growing concerns over demand. Microsoft’s shares have risen sharply since last year, thanks to the early lead the company has taken in generative artificial intelligence through an investment in ChatGPT-maker OpenAI.
Washington based company’s stock closed 0.5% higher, giving it a market valuation of $2.8 trillion. It rose as much as 2% during the session and the company was briefly worth $2.9 trillion. Shares of Apple closed 0.3% lower, giving the company a market capitalisation of $2.8 trillion. Microsoft and Apple have jostled for top spot over the years.
“It was inevitable that Microsoft would overtake Apple since Microsoft is growing faster and has more to benefit from the generative AI revolution,” said D.A. Davidson analyst Gil Luria.
Shares of Cupertino, California-based Apple have fallen 3.3% in January as of the last close, compared with a 1.8% rise in Microsoft. Both stocks are expensive in terms of their share price-to-earnings (PE) ratio, a common method of valuing publicly listed companies.
Apple is trading at a forward PE of 28, well above its average of 19 over the past 10 years, according to LSEG data. Microsoft is trading around 31 times forward earnings, above its 10-year average of 24. Shares of Apple, whose market capitalization peaked at $3.081 trillion on Dec. 14, ended last year with a gain of 48%. That was lower than the 57% rise posted by Microsoft.
Microsoft has briefly taken the lead over Apple as the most valuable company a handful of times since 2018, including in 2021 when concerns about COVID-driven supply chain shortages hit the iPhone maker’s stock price.
Currently, Wall Street is more positive on Microsoft. The company has no “sell” rating and nearly 90% of the brokerages covering the company recommend buying the stock. Apple has two “sell” ratings and only two-thirds of the analysts covering the company rate it a “buy”.
Where did Apple fall short in the race against Microsoft?
Apple has been facing a slowdown in iPhone demand in China as the sales dropped 30% in the first week of 2024, amid signs of growing competitive pressures from Huawei and other domestic rivals, as per reports. In its quarterly report in November, Apple gave a sales forecast for the holiday quarter that missed Wall Street expectations, hurt by weak demand for iPads and wearables.
Microsoft has been adding generative AI to all its products and services and the AI-woes have not stopped for Apple. The current buzz around AI has boosted Microsoft considering their OpenAI initiative. As for Apple, the company has not yet announced any AI related products except for in-built Siri.
Analysts expect Apple to see revenue growth of 0.7% to $117.9 billion for the December quarter, according to LSEG. That would mark its first year-on-year revenue increase in four quarters. Apple will report its results on February 1.
The recent patent case against Apple for the smart watch also contributed to the company’s purple patch. The company is said to be under transition as it prepares to change headquarters for Asian Distribution from China to India.
Despite the exuberance shown by the company’s fans Apple failed to post up the revenue records and fell short in the Stock Market. The results are expected to glow when Apple launches its Vision Pro.
What helped Microsoft?
Microsoft’s rise has to do a lot with OpenAI and its increasing use. Satya Nadella also revealed that Microsoft will soon have AI integrated in all of its products and services which increased excitement and curiosity for its fans.
The Sam Altman fiasco was also said to be added to Microsoft’s benefit as Microsoft and OpenAI somehow managed to bring back Altman after his sacking.
The acquisition plans of Activision Blizzard the biggest gaming company for $ 69 billion has proved to announce the Washington-based company’s entry in the gaming industry. Activision Blizzard is the inventor of games like Candy Crush, Call of Duty, World of Warcraft, etc. The valuable library of titles will be an asset in expanding Microsoft’s Xbox brand and Game Pass service.
Game Pass is a subscription-based platform, often described as a Netflix for games, which has proven useful in attracting new users to the company’s consoles and services. Xbox Game Pass has rapidly grown since its launch in 2017, with subscribers increasing by 150% between 2020 and 2022.