Microsoft Pips Apple to Become World's Most Valuable Company Amid Concerns Over Smartphone Demand

Microsoft's stock market value ended a trading session higher than Apple's for the first time since 2021 on Friday, making it the world's most valuable company as worries about demand hit the iPhone maker's shares. Apple crept up 0.2 percent on Friday, while Microsoft added 1 percent.

With that, Microsoft's market capitalisation stood at $2.887 trillion (roughly Rs. 2,39,26,500 crore), its highest ever, according to LSEG data. Apple's market capitalisation was $2.875 trillion (roughly Rs. 2,38,27,300 crore), calculated with data in a filing on Thursday. Worries about smartphone demand have pushed Apple's shares down 3 percent so far in 2024 after rallying 48 percent last year.

Microsoft is up about 3 percent year to date after surging 57 percent in 2023 in a rally driven in part by its lead in generative artificial intelligence through an investment in ChatGPT maker OpenAI. Apple's market capitalisation peaked at $3.081 trillion (roughly Rs. 2,55,34,600 crore) on December 14, according to LSEG.

Microsoft has incorporated OpenAI's technology across its suite of productivity software, a move that helped spark a rebound in its cloud computing business in the July September quarter. Its AI lead has also created an opportunity to challenge Google's dominance of web search. Apple, meanwhile, has been grappling with tepid demand, including for the iPhone, its cash cow.

Demand in China, a major market, has slumped as the country's economy makes a slow recovery from the COVID 19 pandemic and a resurgent Huawei erodes its market share. Sales of Apple's Vision Pro mixed reality headset start on February 2 in the United States, marking Apple's biggest product launch since the iPhone in 2007.

However, UBS in a report this week estimated that Vision Pro sales would be "relatively immaterial" to Apple's earnings per share in 2024. A handful of times since 2018, Microsoft has briefly taken the lead over Apple as the most valuable company, most recently in 2021, when concerns about supply chain shortages related to the COVID 19 pandemic hit the iPhone maker's stock price.

Both tech stocks look relatively expensive in terms of price to their expected earnings, a common method of valuing publicly listed companies. Apple is trading at a forward PE of 28, well above its average of 19 over the past 10 years, according to LSEG data. Microsoft is trading around 32 times forward earnings, above its 10 year average of 24.

In its most recent quarterly report in November, Apple gave a sales forecast for the holiday quarter that missed Wall Street expectations, hurt by weak demand for iPads and wearables. Analysts on average see Apple posting revenue up 0.7 percent to $117.9 billion (roughly Rs.9,77,100 crore) for the December quarter, according to LSEG.

That would mark its first year on year revenue increase in four quarters. Apple reports its results on February 1. Analysts see Microsoft reporting a 16 percent increase in revenue to $61.1 billion (roughly Rs. 5,06,400 crore), lifted by ongoing growth in its cloud business when it reports in the coming weeks.

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