In a significant market development, Microsoft has dethroned Apple to become the world's most valuable company, signaling a shift in investor confidence. The tech giant from Redmond, Washington, saw a 1.6% surge in its shares, reaching a market valuation of $2.875 trillion.
This milestone comes as Apple's shares faced a lackluster start in 2024, primarily attributed to mounting apprehensions about dwindling demand for its flagship iPhone.
Analysts attribute Microsoft's ascension to its early strides in capitalizing on generative artificial intelligence, a market where it has demonstrated substantial growth, enticing investors to flock to its stock. Gil Luria, an analyst at D.A. Davidson, remarked, "It was inevitable that Microsoft would overtake Apple since Microsoft is growing faster and has more to benefit from the generative AI revolution."
On the flip side, Apple experienced a 0.9% dip in its shares, resulting in a market capitalization of $2.871 trillion. This marks the first instance since 2021 that Apple's valuation has fallen below that of Microsoft, a shift garnering attention across financial circles.
The decline in Apple's stock value follows a series of rating downgrades, sparking concerns about the resilience of iPhone sales, particularly in the critical Chinese market. Redburn Atlantic, a brokerage, highlighted China as a potential drag on Apple's performance, citing competition from resurgent Huawei and escalating Sino-U.S. tensions.
Additionally, Apple's services business, which had been a bright spot in recent quarters, faces challenges as regulatory scrutiny intensifies on a lucrative deal that designates Google as the default search engine on iOS.
Microsoft's growth momentum is further accentuated by its aggressive rollout of generative AI-powered tools in 2023, facilitated by its collaboration with OpenAI, the creator of ChatGPT. This strategic move has propelled Microsoft to temporarily take the lead over Apple as the most valuable company, a trend observed intermittently since 2018, notably in 2021 during concerns related to COVID-driven supply chain shortages.
Presently, Wall Street sentiment leans favorably towards Microsoft, with no "sell" ratings and nearly 90% of brokerages recommending the purchase of Microsoft stocks. In contrast, Apple has received two "sell" ratings, and only two-thirds of analysts covering the company rate it as a "buy."
Both companies, however, face scrutiny for their stock valuations, with Apple trading at a forward PE of 28, surpassing its 10-year average of 19, while Microsoft trades at approximately 31 times forward earnings, above its 10-year average of 24, according to data from LSEG. The situation highlights the prevailing perception of both stocks as relatively expensive in terms of price to expected earnings, a commonly used metric for evaluating publicly listed companies.