On Thursday, Microsoft briefly secured its position as the world’s most valuable company, outpacing Apple (AAPL.O) for the first time since 2021. This change in leadership occurred against the backdrop of Apple experiencing a lackluster start to the year, prompting concerns about the demand for its shares.
Microsoft AI Surge and Stock Momentum
Microsoft’s recent surge in stock value is attributed to its strides in generative artificial intelligence, fueled by its strategic investment in OpenAI. The company’s stock registered a 0.5% uptick, reaching a market valuation of $2.859 trillion, briefly touching $2.903 trillion during the session. In contrast, Apple closed 0.3% lower, settling for a market capitalization of $2.886 trillion.
Analysts, including Gil Luria from D.A. Davidson, foresaw Microsoft’s ascent, citing its faster growth and substantial potential gains from the generative AI revolution. Microsoft strategically integrated OpenAI’s technology into its suite of productivity software, contributing to a rebound in its cloud-computing business during the July-September quarter.
On the flip side, Apple grappled with challenges arising from dwindling demand, particularly for its flagship product, the iPhone. The diminishing demand in China, a critical market for Apple, coupled with resurgent competition from Huawei, adversely impacted its market share.
Redburn Atlantic expressed reservations about Apple’s performance, highlighting the potential drag from China in the coming years, leading to a downgrade of Apple’s shares to “neutral.” Since the beginning of 2024, at least three analysts covering Apple have downgraded their ratings.
In terms of stock performance, Apple shares took a 3.3% dip in January, while observed a 1.8% rise. Both companies, however, exhibited elevated share price-to-earnings (PE) ratios. Apple’s forward PE stood at 28, surpassing its 10-year average of 19, according to LSEG data. Microsoft traded around 31 times forward earnings, exceeding its 10-year average of 24.
Apple, reaching its market capitalization peak at $3.081 trillion on December 14, concluded the previous year with a 48% gain, marginally lagging behind Microsoft’s 57% rise. This scenario isn’t novel briefly surpassed Apple in 2021 amid concerns about COVID-driven supply chain shortages impacting Apple’s stock price.
Currently, Wall Street sentiment tilts favorably toward Microsoft. With no “sell” ratings and nearly 90% of brokerages endorsing the stock, Microsoft stands in stark contrast to Apple. Apple, with two “sell” ratings, commands a “buy” recommendation from two-thirds of the analysts covering the company.
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