As investors see Microsoft Corp.’s stronger growth and substantially reduced China risk, the software juggernaut is closing the stock market gap with Apple Inc. according to Bloomberg.
This month, the Redmond, Washington-based corporation’s shares outperformed those of the iPhone maker, bringing its market value closer to that of Apple, which is at the center of a resurgence of tensions with China. Although the two companies are still separated by hundreds of billions of dollars, Microsoft’s leadership in fields such as cloud computing and artificial intelligence makes it more desirable to investors.
According to David Klink, senior equities analyst at Huntington Private Bank, “Microsoft has more of what the market wants right now, and given where we stand on the pair’s growth prospects, we wouldn’t be surprised to see it overtake Apple,” as reported by Bloomberg.
“We have more faith in Microsoft’s margins, while the cloud and AI are growth areas that can stand the test of time over a decade. We don’t know if the iPhone can do the same,” he stated. He also added, given Apple’s services business, “it’s difficult to make a bear case for them, but the bull case clearly favors Microsoft.”
Microsoft’s market capitalization last eclipsed Apple’s in November 2021. Despite falling from a peak of approximately $3.1 trillion, Apple’s market value remains greater than Microsoft’s, which is close to $2.4 trillion. The gap between Apple and Microsoft has reduced to almost $200 billion at one point this week, as Microsoft shares have remained constant this month despite Apple’s decline.
Apple’s challenging position in the tech landscape
Microsoft is typically preferred over Apple on Wall Street. The company’s recommendation consensus is much greater than Apple’s, which acts as a proxy for its buy, hold, and sell rating ratio. Almost 90% of Microsoft analysts favor buying the stock, while only 2/3 of Apple analysts do.
Apple has had three straight quarters of negative sales growth, and if that pattern continues, as analysts estimate, it will have done so for the longest time in twenty years. According to Bloomberg data, while that is expected to improve in Apple’s fiscal year 2024 and continue to grow in the following two years, the rate isn’t expected to be quite as robust as Microsoft’s.
The iPhone’s creator is “looking like the old IBM,” according to Bernstein analyst Toni Sacconaghi. IBM Corporation’s “strength in mainframes and associated account control once seemed unassailable,” Sacconaghi warned, adding that “Apple’s key risks are that iPhone is replaced by a new computing/internet access platform.”
AI, the year’s most popular investing topic, might be that new something. Apple may fall to fourth position among US equities, trailing Alphabet Inc., Amazon.com Inc., and Microsoft, according to Needham, because it “is not a core beneficiary of the trend towards generative AI.” Separately, Rosenblatt Securities warned that Nvidia Corp., the chipmaker that has reaped the most benefits from the AI revolution but is still smaller than Apple, may challenge Apple’s reign. Currently, Nvidia Corp. is less than half the size of Apple.
Challenges and risks for Apple
Despite signs of high demand, Apple’s most recent gadget introductions were devoid of surprises. Huawei Technologies Co.’s new phones may pose a competitive threat amid concerns about government restrictions on iPhones in China, which account for roughly a quarter of Apple’s revenue. Apple’s efforts to produce chips in-house may take longer than expected. Microsoft’s president, Brad Smith, told legislators last week that China accounts for only around 2% of the company’s revenue.
According to Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder, “Consistency is worth a lot when considering a company’s valuation, and Microsoft, because of its consistency and projected growth rate, has an advantage over Apple right now.” “I like both, but Apple has a higher risk,” he added.
The returns of tech stocks by size have drastically differed as a result of Wall Street’s largest stocks’ outperformance. In 2023, the S&P 500 tech sector index climbed by 38%, but the comparable mid-cap index increased by only 16%. Meanwhile, the small-cap tech stock index has increased by less than 11 percent.