In a groundbreaking shift, Microsoft has dethroned Apple to emerge as the world’s most valuable company, boasting a market valuation of $2.875 trillion, slightly edging out Apple’s $2.871 trillion.
Reuters reports that the reshuffling of the tech hierarchy is primarily attributed to Apple’s lackluster performance in the early months of 2024, raising concerns about demand for its flagship product, the iPhone.
Microsoft’s stocks experienced a robust 1.6% surge, credited to its early leadership in the race to harness the potential of generative artificial intelligence (genAI), which garnered increased investor attention.
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Analyst Gil Luria from D.A. Davidson pointed at the inevitability of Microsoft surpassing Apple, noting Microsoft’s rapid growth and its substantial gains from the genAI revolution.
Conversely, Apple faced a 3.3% decline in its stocks in January, compared to Microsoft’s 1.8% ascent, marking the first instance since 2021 that Apple’s valuation has dipped below Microsoft’s.
The slump in Apple’s shares is traced back to a series of rating downgrades, signaling worries about the sustainability of iPhone sales, particularly in the pivotal Chinese market. Redburn Atlantic expressed concern about China potentially hindering Apple’s performance, citing fierce competition from Huawei and heightened Sino-U.S. tensions affecting Apple’s market position.
“China could be a drag on performance over the coming years,” the brokerage said.
Adding to Apple’s challenges is regulatory scrutiny over its services business, which has been a recent bright spot in its financial reports. The potential antitrust implications of the lucrative deal designating Google as the default search engine on iOS have become a focal point for regulators.
Microsoft’s success is underscored by its aggressive rollout of genAI-powered tools throughout 2023, a strategic move resulting from its collaboration with OpenAI. This recent triumph echoes Microsoft’s sporadic overtaking of Apple as the most valuable company, which last happened in 2021 during disruptions caused by COVID-driven supply chain shortages.
Currently, Wall Street sentiment strongly favors Microsoft, with almost 90% of brokerages endorsing the stock and no “sell” ratings. In contrast, Apple faces a more subdued outlook with two “sell” ratings and only two-thirds of analysts advocating it as a “buy.”
Both Microsoft and Apple are currently deemed relatively expensive in terms of their price-to-earnings ratios. Apple’s forward PE stands at 28, well above its 10-year average of 19, while Microsoft trades at around 31 times forward earnings, exceeding its 10-year average of 24, according to LSEG data.
The surprising shift has created a fresh challenge for Apple, as the market watches whether the Cupertino giant will swiftly reclaim its top position in the fiercely competitive tech industry or if Microsoft will solidify its reign as the world’s most valuable company.