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Microsoft is Overtaking Apple: Can Apple Keep Up?

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By Jaden Francis - - 5 Mins Read
Apple 3D logo; Microsoft 3D logo
Featured | gguyy/Shutterstock

Microsoft (MST.O) briefly surpassed Apple (AAPL.O) as the world's most valuable company on Thursday, marking a significant moment in the ongoing competition between these tech giants.


This shift in the market dynamics has raised questions among investors, prompting them to contemplate whether now is the opportune moment to invest in Microsoft stock.


Let's dive into the details of this unexpected development and explore the factors influencing this change in valuation.

Microsoft's Rise to the Top

Microsoft's ascent to the pinnacle of the market was driven by its robust performance, with its shares closing 0.5% higher, reaching a market valuation of $2.859 trillion.


The company experienced a peak of 2% during the trading session, briefly touching a remarkable $2.903 trillion.


This surge can be attributed to Microsoft's strategic investment in generative artificial intelligence, particularly through its collaboration with OpenAI, the developer of ChatGPT.


Analysts believe that Microsoft's strategic integration of OpenAI's technology across its suite of productivity software played a pivotal role in revitalizing its cloud-computing business.

Microsoft logo; Open AI logo displayed on a smartphone
Image | Shutterstock

This move has positioned Microsoft as a frontrunner in the realm of generative AI, giving it a competitive edge over its rivals.

Apple's Struggles and the Chinese Conundrum

On the other hand, Apple has encountered challenges, particularly concerning weakening demand for its flagship product, the iPhone.


The company's market capitalization closed at $2.886 trillion, with shares dipping by 0.3%. The dip is reflective of concerns over slowing demand, particularly in China, a crucial market for Apple.


The sluggish recovery of the Chinese economy from the pandemic, coupled with the resurgence of Huawei, has impacted Apple's market share.


Analysts from Redburn Atlantic noted that China could be a drag on Apple's performance in the coming years, prompting a downgrade of the company's shares to "neutral."


Several analysts covering Apple have adjusted their ratings downward in light of these challenges.

Valuation and Stock Performance Comparison

In terms of valuation, Microsoft, with its $2.85 trillion market capitalization, has edged ahead of Apple. Interestingly, while Apple experienced a 3.3% decline in shares in January, Microsoft has seen a 1.8% rise during the same period.


However, both companies are currently deemed expensive based on their share price-to-earnings (PE) ratio, a common metric for assessing the value of publicly listed companies.


Apple's forward PE of 28 exceeds its 10-year average of 19, according to LSEG data. Similarly, Microsoft is trading at around 31 times forward earnings, surpassing its 10-year average of 24.

Historical Performance and Analyst Sentiment

Looking back at 2021, Microsoft outperformed Apple, ending the year with a 57% rise compared to Apple's gain of 48%. This historical context, coupled with the current positive sentiment on Wall Street, further underscores Microsoft's momentum.


With no "sell" rating and almost 90% of brokerages recommending Microsoft stock, the market sentiment appears decidedly favorable towards the tech giant.


In contrast, Apple has received two "sell" ratings, with only two-thirds of analysts recommending it as a "buy." This dichotomy in analyst sentiment adds another layer to the evolving narrative of Microsoft's ascendance.

Evaluating Forward P/E and Growth Projections

Examining the forward price-to-earnings (P/E) ratios and compound annual growth rates (CAGR) provides additional insights into the comparative positioning of Microsoft and Apple.


Microsoft's forward P/E has grown by 46% over the past five years, reflecting both stock performance and rapid earnings growth.


Analyzing CAGR for sales and earnings per share over the past five years and projections for the next two years, Microsoft consistently outpaces Apple.


The expected sales and earnings per share CAGR from 2023 through 2025 suggest that Microsoft is poised for sustained growth, whereas Apple may face challenges in keeping pace.