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IF Insights: Making sense of Microsoft beating Apple to become most-valued company

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Several times since 2018, Microsoft has momentarily surpassed Apple to become the world's most valuable corporation

Fears about demand hurt Apple’s shares on January 12, 2024, and Microsoft’s stock market valuation ended a trading day greater than the one of the iPhone maker for the first time since 2021, making it the most valuable corporation in the world.

Apple increased by 0.2% while Microsoft gained 1%. According to LSEG data, Microsoft’s market capitalisation reached its highest point ever at USD 2.887 trillion at that point. Apple’s market value, as determined by statistics in a filing on January 11, was USD 2.875 trillion.

Apple’s stock has dropped 3% in 2024 due to concerns about smartphone demand, despite a 48% increase in value in 2023. After soaring 57% in 2023, thanks in part to its leadership in generative artificial intelligence through an investment in ChatGPT creator OpenAI, Microsoft is up roughly 3% year to date.

As per LSEG, on December 14, 2023, Apple’s market capitalisation reached its highest point of USD 3.081 trillion.

Microsoft’s adoption of OpenAI’s technology throughout its productivity software line contributed to a growth in the company’s cloud computing division during the July–September 2023 quarter. It’s the artificial intelligence (AI) leadership that has also made it possible to counter Google’s hegemony in online search.

Apple, on the other hand, has been battling weak demand, particularly for its cash cow, the iPhone. As the economy of China, a significant market slowly recovers from the COVID-19 pandemic and a resurgent Huawei eats away at its market position, demand in that country has fallen.

Starting on February 2 in the United States, Apple’s Vision Pro mixed-reality headset will be available for purchase. This is the company’s largest product launch since the 2007 release of the iPhone. However, according to a forecast released this week by UBS, Vision Pro sales in 2024 would only have a “relatively immaterial” impact on Apple’s earnings per share.

Several times since 2018, Microsoft has momentarily surpassed Apple to become the world’s most valuable corporation. The most recent instance occurred in 2021 when the stock price of the iPhone manufacturer was negatively impacted by worries about supply chain bottlenecks brought on by the COVID-19 epidemic.

When comparing the prices of these tech stocks to their predicted earnings—a popular metric used to value publicly traded companies—they appear to be rather pricey. LSEG data shows that Apple is trading at a forward PE of 28, significantly higher than its average of 19 over the previous ten years. Microsoft is trading above its 10-year average of 24 times forward earnings, at about 32 times.

Due to the poor demand for iPads and wearable, Apple’s holiday quarter sales estimate for the quarter ended in November 2023 fell short of Wall Street’s forecasts in the company’s most recent quarterly report.

LSEG reports that analysts expect Apple to report revenue for the December quarter of USD 117.9 billion, up 0.7% on average. Its first sales growth year over year in four quarters would occur at that point. Apple releases its earnings on February 1.

When Microsoft reports in the upcoming weeks, analysts anticipate it will post revenue up 16% to USD 61.1 billion, driven by the company’s continuing rise in the cloud business.

Not All Is Over For Apple

Although Microsoft now holds the title of largest American public business again, Apple has reclaimed the distinction for the first time, an honour that no one can snatch away from the Tim Cook-led venture.

Based on shipments, the consumer electronics giant was the biggest supplier of smartphones in 2023, as per recent statistics from market research firm IDC. During the year, Apple shipped 234.6 million smartphones, more than Samsung, which shipped 226.6 million.

IDC data indicates that Apple has never before occupied the top position. Furthermore, 2023 was the first time since 2010 that a business other than Samsung held the role.

Apple’s rise occurred amid a difficult year for the smartphone market as a whole, with industry shipments falling 3.2%. Of the top four phone manufacturers, Apple was the only one to record higher shipments, with a 3.7% year-over-year improvement.

On January 16, reports emerged about Apple being the number one smartphone brand in the world, overtaking Samsung for the first time in twelve years.

According to data released by the International Data Corporation (IDC), Apple sold more smartphones than any other brand in 2023 commanding a hefty 20.1% cumulative market share globally. Samsung’s market share during the same period was 19.4%.

With 80.5 million units, the corporation easily led the market and witnessed an increase in shipments of 11.6% in the fourth quarter of the calendar year, according to IDC. With 53 million shipments throughout the quarter, Samsung came in second, down 10.9%.

Two Chinese firms, Xiaomi and Transsion, ranked third and fourth respectively, with 40.7 million shipments (up 22.7%) and 28.2 million shipments (up 68.6).

When Apple releases its earnings after the markets close on February 1, it will provide its perspective on the December quarter.

Despite certain investor concerns regarding Apple’s positioning, the business maintains a strong position in IDC’s tables. Concerns about Huawei and other Chinese manufacturers resurfacing have been voiced by some on Wall Street, and Apple has scheduled an exceptional sale in China for the Lunar New Year vacation.

Apple’s stock fell 1.2% on 16th January and has lost 4.6% so far in 2024. After falling below Microsoft MSFT, +0.46%, which concluded the trading day with a USD 2.9 trillion valuation, the company now has a USD 2.84 trillion market worth.

IDC did point out that Apple continues to hold a commanding lead in the smartphone industry.

“The growing trend of premium devices, which now account for over 20% of the market and are driven by aggressive trade-in offers and interest-free financing plans, is in large part responsible for Apple’s continued success and resilience,” Popal said.

Conclusion

Microsoft is on top for now despite Apple’s absolute conquest of the smartphone segment. However, watchdogs in the European Union may look into Microsoft’s USD 13 billion investments in OpenAI, though.

Recent disclosures of extensive ties between Microsoft and OpenAI have prompted the European Commission to assess whether the relationship merits more examination under merger regulations. If found to be impeding fair competition, this evaluation could result in a formal enquiry and termination.

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