Microsoft Briefly Crowned As The Most Valuable Company, Overtook Apple

When you think of ‘tech giants‘, you think of companies like Microsoft, Apple, and Google. Imagine the cut-throat competition between them to emerge as the top player. On January 11, Microsoft surpassed Apple to emerge as ‘The Most Valuable Company‘ for a brief period for the first time since 2021. This unprecedented event occurred after the iPhone maker’s shares made a weak start to the year on growing concerns over demand.

The boom in artificial intelligence has brought a new twist to the decades-long rivalry between the two Big Tech players. Investors have been excited about the new wave of generative AI which has fuelled a rally in the shares of Microsoft. And being the biggest backer of OpenAI, the maker of the popular AI-powered chatbot ChatGPT, has worked out really well in the company’s favour.

Microsoft’s shares have risen sharply since last year due to the company’s early lead in generative artificial intelligence. Its stock (MSFT.O) closed 0.5% higher, giving it a market valuation of $2.859 trillion. It rose as much as 2% during the session and the company was briefly worth $2.903 trillion. Shares of Apple (AAPL.O) closed 0.3% lower, giving the company a market capitalization of $2.886 trillion.

Also Read: Microsoft Adds A New AI Key For Its Copilot Tool, A First in 30 Years

Microsoft and Apple have jostled for the 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. Microsoft has incorporated OpenAI’s technology across its productivity software suite, a move that helped spark a rebound in its cloud-computing business in the July-September quarter.

Apple’s Downfall

Meanwhile, Apple has been grappling with weakening demand, including for the iPhone, its biggest cash cow. Demand in China, a major market, has slumped as the country’s economy makes a slow recovery from the pandemic and a resurgent Huawei (HWT.UL) chips away at its market share. “China could be a drag on performance over the coming years,” brokerage Redburn Atlantic said in a client note on Wednesday, downgrading Apple’s shares to “neutral“.

Apple has largely been left out of the AI fervour. At least three of the 41 analysts covering Apple have lowered their ratings since the start of 2024. Shares of Cupertino, California-based tech company have fallen 3.3% in January as of the last close, compared with a 1.8% rise in Microsoft.

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“.

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.

The Rivalry

Apple and Microsoft have been rivals since the 1980s. The company founded by Steve Jobs and Steve Wozniak accused Bill Gates’ Windows maker of stealing the “look and feel” of its Macintosh computer software. Apple lost a high-profile copyright lawsuit targeting Windows in the early 1990s, clearing the way for Microsoft to dominate the PC market for decades.

But Apple bounced back with the success of its iPhone and finally overtook Microsoft in 2010 and retained the top position for several years. At the time, Windows was struggling with the transition to mobile computing. Post that, 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.

While its old rival is focused on AI, Apple is hoping the launch of its new Vision Pro headset next month will usher in a new era of “spatial computing” that relies on rich 3D graphics and new kinds of hand gestures to make interaction more natural and intuitive.

Despite hints that Apple is developing the same kind of large language models that power the latest AI chatbots to run on its own devices, the runaway success of ChatGPT and the industry-wide scramble to catch up with it has buoyed demand for Microsoft’s cloud services as well as the Nvidia processors that are needed to create such tools.