Microsoft surpasses Apple as the most valuable listed company
For over a decade, Apple was the undisputed king of the stock market. It first overtook Exxon Mobil as the world's most valuable publicly traded company in 2011 and held the title virtually without interruption.
But a transfer of power has begun.
On Friday, Microsoft surpassed Apple to claim the crown after its market value rose by more than $1 trillion in the past year. Microsoft ended the day at $2.89 trillion, higher than Apple's $2.87 trillion, according to Bloomberg.
The change is part of a stock market realignment set in motion by the advent of generative artificial intelligence. The technology, which can answer questions, create images and write code, is being hailed for its potential to disrupt businesses and create trillions of dollars in economic value.
When Apple replaced Exxon, it ushered in an era of technological supremacy. The values of Apple, Amazon, Facebook, Microsoft and Google dwarfed former market leaders such as Walmart, JPMorgan Chase and General Motors.
The tech industry still dominates the top of the list, but the companies with the most momentum have put generative AI at the forefront of their future business plans. The combined value of Microsoft, Nvidia and Alphabet, Google's parent company, increased by $2.5 trillion last year. Their performance surpassed Apple, which posted a smaller share price gain in 2023.
“It simply comes down to generational AI,” said Brad Reback, an analyst at investment bank Stifel. Generative AI will impact all of Microsoft's businesses, including its largest, he said, while “Apple doesn't really have an AI story yet.”
Microsoft and Apple declined to comment.
Microsoft hasn't led a technology transition since the personal computing era, when the Windows operating system dominated sales. It was late before the internet, mobile phone and social media.
When Satya Nadella became CEO of Microsoft in 2014, the company was in trouble. He refocused it on the growing cloud computing business and turned it into a strong challenger to Amazon, the pioneer in the field. Mr. Nadella then pushed the company forward again and aggressively pursued generative AI
In 2019, Mr. Nadella made the first of several investments from Microsoft in OpenAI, the startup that would build the AI-powered ChatGPT chatbot. In late summer 2022, he was impressed by a taste of OpenAI's underlying technology, known as GPT-4, and soon began pushing Microsoft to add generative AI to its products in what he called a called 'hectic pace'.
He started by adding a chatbot to the Bing search engine, but then began pushing AI into the Windows operating system and productive applications like Excel and Outlook, as well as offering OpenAI's systems to customers of Microsoft's flagship Azure in the field of cloud computing.
The revenue is only just starting to show up in Microsoft's financial results. Generative AI was responsible for about three percentage points of Azure's growth in the three months ending in September, and Microsoft's $30 per month productivity software offering wasn't widely released until November.
(The New York Times has sued OpenAI and Microsoft, accusing them of copyright infringement.)
This isn't the first time Microsoft has had an edge over Apple in recent years. That happened in 2018, when its cloud computing business began to boom, and in 2021, when the pandemic disrupted Apple's iPhone business. But this change could be more indicative of a fundamental shift in the tech industry.
“The question is: Who has the better mousetrap to get to the next level of $3.5 trillion?” says Dan Morgan, portfolio manager and analyst at Synovus Trust, a bank in the Southeast. “You can say that Microsoft is in the better position. Apple is struggling with the next big thing.”
The iPhone, which debuted in 2007, catapulted Apple to the top of the stock market. Between 2009 and 2015, the company went from selling 20 million iPhones a year to more than 200 million.
As device sales declined in recent years, Apple CEO Tim Cook shifted the company's focus from selling more iPhones to selling more apps and services to people on their existing iPhones. This strategy boosted Apple's annual revenue to $383 billion, a nearly fourfold increase from the end of 2011, the year Apple co-founder Steve Jobs passed away.
Mr Cook's strategy is showing signs of fatigue. The iPhone, which accounts for more than half of Apple's revenue, has become known more for its annual improvements than for its notable innovations. Purchases of iPads and Macs have decreased. And revenue growth from its services such as Apple Music is slowing.
Last year, the company's revenue fell for four quarters in a row. But Apple's shares still rose about 50 percent last year, and investors lifted its market value to nearly $3 trillion on their belief that demand for the iPhone would continue.
Wall Street analysts predict iPhone sales will be weak this year. The company faces challenges in China, where Huawei has released a new phone and the government is restricting the use of foreign smartphones.
While Microsoft and others have been building new generative AI companies, Apple has been absent from the conversation. On a call with analysts last year, Mr. Cook said Apple was “in progress” on AI, but he declined to elaborate.
Last year, Apple engineers tested a large language model that could power a chatbot, The Times reported. The company has also had discussions with publishers about acquiring equipment to train generative AI systems. But it hasn't released anything publicly yet.
“Apple must consider that if they want to maintain their place as one of the most innovative technology companies, they will need to get behind AI in a big way,” said Gene Munster, managing partner at Deepwater Asset Management.
Apple has focused on the release of an augmented reality headset, the Vision Pro. The device, which ships on February 2, is the first major new product category the company has released since the Apple Watch in 2014. Analysts expect Apple to sell fewer than half a million units.