In the ever-evolving landscape of technology and finance, the rivalry between industry giants Microsoft and Apple has taken a new turn as Microsoft inches closer to surpassing Apple as the world’s most valuable company. Recent fluctuations in Apple’s stock, driven by concerns over iPhone sales, have created a window of opportunity for Microsoft, setting the stage for a potential shift in the hierarchy of global corporate valuation. A recent decline in Apple’s (AAPL.O) stock, driven by concerns about iPhone sales, has positioned the Silicon Valley giant at risk of losing its status as the world’s most valuable company to Microsoft (MSFT.O).
Fears surrounding smartphone demand have led to a 4% drop in Apple’s shares in 2024, following a robust 48% surge the previous year. Microsoft, on the other hand, has seen a 2% increase year-to-date, building on its impressive 57% surge in 2023. On Wednesday, Apple’s stock slipped by 0.4%, while Microsoft gained 1.6%, narrowing the gap between the two tech giants. Apple’s market value stands at $2.866 trillion, slightly ahead of Microsoft’s $2.837 trillion valuation. Apple reached its peak market capitalization at $3.081 trillion on Dec. 14, while Microsoft hit $2.844 trillion on Nov. 28.
Jefferies analysts reported a 30% drop in iPhone sales in China in the first week of 2024, heightening concerns about increasing competition from domestic rivals like Huawei [RIC:RIC:HWT.UL].
The Stock Market Battle
The Silicon Valley heavyweight, Apple, has faced a 4% decline in its shares since the beginning of 2024, following an impressive 48% surge in the previous year. In contrast, Microsoft has demonstrated resilience, with a 2% year-to-date increase, building on a remarkable 57% surge in 2023. This trend has narrowed the valuation gap between the two tech behemoths, prompting speculation about Microsoft’s potential ascent to the top.Apple’s much-anticipated Vision Pro mixed-reality headset is set to launch on Feb. 2 in the United States, marking its most significant product launch since the iPhone in 2007. However, UBS estimated that Vision Pro sales would have a “relatively immaterial” impact on Apple’s earnings per share in 2024. Microsoft has intermittently surpassed Apple as the most valuable company a few times since 2018, with the latest occurrence in 2021 when supply chain concerns related to the COVID-19 pandemic impacted Apple’s stock.
As of now, Apple’s market capitalization stands at $2.866 trillion, maintaining a slight lead over Microsoft’s $2.837 trillion valuation. However, Apple’s recent peak at $3.081 trillion on Dec. 14 has given way to concerns about the sustainability of its growth trajectory. The decline is attributed to worries about smartphone demand, particularly in China, where iPhone sales reportedly dropped by 30% in the first week of 2024.
Microsoft, on the other hand, has been steadily advancing, with its market value reaching as high as $2.844 trillion on Nov. 28. The company’s diverse portfolio, including robust growth in cloud services, has contributed to its positive stock performance. Microsoft’s ability to weather economic uncertainties and navigate market challenges has positioned it as a formidable contender for the top spot.
Despite the recent setbacks, Apple is not without strategic initiatives to regain momentum. The imminent launch of the Vision Pro mixed-reality headset on Feb. 2 in the United States is a significant move for Apple. However, analysts suggest that the impact on earnings per share in 2024 may be “relatively immaterial,” signaling the need for Apple to address broader market concerns.
Historical Perspective
The rivalry between Microsoft and Apple has seen fluctuations in the past, with Microsoft briefly overtaking Apple as the most valuable company in 2021 due to supply chain concerns related to the COVID-19 pandemic. The current scenario echoes a similar theme, with Microsoft poised to capitalize on Apple’s recent challenges.
Both Apple and Microsoft are currently perceived as relatively expensive in terms of their forward price-to-earnings ratios. Apple’s forward PE of 28, significantly above its 10-year average of 19, reflects the market’s anticipation of sustained growth. Microsoft, with forward earnings multiple of around 31, surpassing its 10-year average of 24, underscores investor confidence in its future prospects.
Both tech stocks appear relatively expensive based on their forward price-to-earnings ratios, a common valuation metric for publicly listed companies. Apple is currently trading at a forward PE of 28, well above its 10-year average of 19, according to LSEG data. Microsoft’s forward earnings multiple is around 31, exceeding its 10-year average of 24.
In its recent quarterly report in November, Apple provided a sales forecast for the holiday quarter that fell short of Wall Street expectations, primarily due to weak demand for iPads and wearables. Analysts, on average, anticipate Apple reporting 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 scheduled to announce its results on Feb. 1. Meanwhile, analysts expect Microsoft to report a 16% increase in revenue to $61.1 billion, driven by continued growth in its cloud business, when it reports in the coming weeks.