Microsoft Surpasses Apple in Market Valuation- An Inside Look at the Market’s Turn of the Tide

After a dramatic shift in market fortunes, Microsoft has reclaimed the throne as the world’s most valuable publicly traded company, surpassing Apple in market capitalization.

With a closing stock price of $388.47, Microsoft’s market cap reached $2.89 trillion, its highest ever, according to LSEG data, outpacing Apple, whose market cap closed at $2.87 trillion with a stock price of $185.92.

Concerns regarding smartphone demand have resulted in a 3% decline in Apple’s shares in 2024, following a remarkable 48% surge the previous year. In contrast, Microsoft has experienced a modest 3% increase year-to-date after an impressive 57% surge in 2023. This shift reflects Microsoft’s exceptional performance, particularly in the realm of generative artificial intelligence.

Here’s how Microsoft skyrocketed to become the world’s most valuable public company, completely dominating the market.

Microsoft’s AI Push

In 2023, the company’s CEO, Satya Nadella, made a multi-billion-dollar investment in AI, including commercialising and adding AI tools like ChatGPT into its suite of products before rivals.

Incorporating OpenAI’s technology into its suite of productivity software has significantly contributed to Microsoft’s cloud-computing business rebound in the July-September quarter. The AI leadership has also positioned Microsoft to challenge Google’s dominance in web search.

Other AI-focused tech players such as Nvidia, Meta Platforms (META.O) and Alphabet (GOOGL.O), also witnessed a big jump in their market cap in the past year.

Regulatory scrutiny on Apple

The tech giant is embroiled in a public legal battle that has blocked US sales of its Apple Watch and suffered three stock downgrades so far in January. The US International Trade Commission (ITC) concluded that Apple had violated two patents held by medical device maker Masimo. Consequently, the ITC imposed an import ban on the Apple Watch Series 9 and Ultra 2. Responding to the allegations, Apple decided to discontinue both the Series 9 and Ultra 2 versions of its widely popular watch.

Apple sees slump in demand

2024 hasn’t started well for Apple. The initial downgrade from UK bank Barclays resulted in the wipe out  of over $100 billion in market capitalization within a single day. Anticipations suggest that Apple’s challenges in China will persist this year, with the tech giant encountering obstacles related to muted demand, especially for its flagship product, the iPhone.

Chinese government officials are prohibited from using devices from the California-based company, while domestic competitors like Huawei are making significant strides. Jefferies analysts recently said that the slow sales for the iPhone 15 in China have resulted in a 30% year-on-year decline in the country.

“China could be a drag on performance over the coming years,” brokerage Redburn Atlantic said in a client note on Wednesday. It has downgraded Apple’s shares to “neutral”.

The release of Apple’s Vision Pro mixed-reality headset on February 2 in the United States marks a significant product launch, comparable to the iPhone in 2007. However, a UBS report this week suggests that Vision Pro sales will have a “relatively immaterial” impact on Apple’s earnings per share in 2024.

Market Capitalisation Trends

Apple’s market capitalisation, which peaked at $3.081 trillion on December 14, ended the previous year with a 48% gain, trailing behind Microsoft’s impressive 57% surge. The contrasting trends in market capitalisation contributed to Microsoft’s overtaking of Apple.

According to LSEG, analysts, on average, anticipate Apple to post a 0.7% increase in revenue to $117.9 billion for the December quarter, marking its first year-on-year revenue growth in four quarters. Apple is set to report its results on February 1. On the other hand, analysts foresee Microsoft reporting a 16% revenue increase to $61.1 billion, driven by continued growth in its cloud business, with the official report expected in the coming weeks.

In its most recent quarterly report in November, last year, Apple provided a sales forecast for the holiday quarter that fell short of Wall Street expectations, citing weakened demand for iPads and wearables. Despite this, the sentiment on Wall Street remains optimistic regarding Microsoft. According to Reuters, nearly 90 percent of the brokerages covering Microsoft are suggesting a buy recommendation for the stock.