In a significant development, Microsoft briefly surpassed Apple as the world’s most valuable company on Thursday, marking the first time since 2021.
This shift in rankings occurred as Apple’s shares experienced a lackluster beginning to the year, raising apprehensions about demand.
Microsoft’s remarkable surge in share value can be attributed to its pioneering efforts in generative artificial intelligence, primarily driven by its investment in OpenAI, the creator of ChatGPT.
MSFT’s stock experienced a 0.5% increase in its closing, resulting in a market valuation of $2.859 trillion. Throughout the trading session, it even saw a rise of up to 2%, briefly reaching a worth of $2.903 trillion.
Market Dynamics: Microsoft’s Rise and Apple’s Challenges
On the other hand, Apple’s shares closed with a 0.3% decrease, giving the company a market capitalization of $2.886 trillion. Over the years, Microsoft and Apple have continuously competed for the top position.
According to D.A. Davidson analyst Gil Luria, it was expected that Microsoft would surpass Apple due to its faster growth rate and greater potential benefits from the generative AI revolution.
MSFT’s integration of OpenAI’s technology into its suite of productivity software played a significant role in revitalizing its cloud-computing business during the July-September quarter.
Meanwhile, Apple has been facing challenges with declining demand, particularly for its flagship product, the iPhone, which has been its primary source of revenue.
The sluggish recovery of China’s economy from the pandemic, coupled with the increasing market share of Huawei, has contributed to the decline in demand in this crucial market.
Redburn Atlantic, a brokerage firm, expressed concerns about China potentially impacting Apple’s performance in the upcoming years and downgraded the company’s shares to a “neutral” rating in a client note on Wednesday.
Since the beginning of 2024, at least three out of the 41 analysts covering Apple have downgraded their ratings for the company.
Market Performance: Apple’s Decline and Microsoft’s Rise in January
In January, the shares of Apple, based in Cupertino, California, experienced a decline of 3.3%, whereas Microsoft saw a rise of 1.8%. Both companies have high share price-to-earnings (PE) ratios, which is a common method used to evaluate publicly listed companies.
According to LSEG data, Apple is currently trading at a forward PE of 28, which is significantly higher than its average of 19 over the past 10 years. On the other hand, Microsoft is trading at around 31 times forward earnings, surpassing its 10-year average of 24.
Apple’s shares ended last year with a 48% gain, although it was lower than the 57% increase observed in Microsoft’s shares. Apple’s market capitalization reached its peak at $3.081 trillion on December 14.
Since 2018, Microsoft has briefly surpassed Apple as the most valuable company on several occasions, including in 2021 when concerns about COVID-driven supply chain shortages affected Apple’s stock price.
Currently, Wall Street holds a more positive outlook on Microsoft. The company does not have any “sell” ratings, and nearly 90% of the brokerages covering Microsoft recommend buying its stock.
In contrast, Apple has received two “sell” ratings, and only two-thirds of the analysts covering the company consider it a “buy”.