As investors recognise Microsoft Corp.’s superior growth and significantly lower China risk, the software behemoth is closing the gap with Apple Inc. in the stock market, according to a Bloomberg report.
This month, the shares of the Redmond, Washington-based corporation outpaced those of the iPhone manufacturer, putting its market worth closer to that of Apple, which is at the centre of a resurgence in tensions with China. Although there are still hundreds of billions of dollars separating the two businesses, Microsoft’s leadership in industries like cloud computing and artificial intelligence make it more appealing 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 favours Microsoft.”
Microsoft last surpassed Apple in size in November 2021. Despite declining from a height of around $3.1 trillion, Apple’s market capitalization is still more than Microsoft’s, which is close to $2.4 trillion. The difference between Apple and Microsoft has shrunk to about $200 billion at one point last week as Microsoft shares have maintained constant this month despite the decline in Apple shares.
On Wall Street, Microsoft is frequently preferred over Apple. The company’s recommendation consensus, which serves as a proxy for its buy, hold, and sell rating ratio, is significantly higher than Apple’s. Almost 90 per cent of Microsoft experts favour buying the stock, compared to only 2/3 of Apple analysts.
Apple has experienced negative sales growth for three consecutive quarters, and if that trend continues—as analysts predict—it would have done so for the longest time in twenty years. According to statistics gathered by Bloomberg, while that’s anticipated to change for the better in Apple’s fiscal year 2024 and continue expanding in the following two years, the rate isn’t anticipated to be quite as robust as that of Microsoft.
The maker of the iPhone is “looking like the old IBM,” Bernstein analyst Toni Sacconaghi wrote. IBM Corporation’s “strength in mainframes and associated account control once seemed unassailable,” Sacconaghi said, cautioning that “Apple’s key risks are that iPhone is replaced by a new computing/internet access platform.”
AI, the year’s trendiest investing topic, may be that new something. Needham said that Apple might drop to fourth place among US equities, behind Alphabet Inc., Amazon.com Inc., and Microsoft, since it “is not a core beneficiary of the trend towards generative AI.” Separately, Rosenblatt Securities warned that Nvidia Corp., the chipmaker that has so far benefited the most from the AI boom but is currently smaller than Apple, could challenge Apple’s throne. Nvidia Corp. is currently less than half the size of Apple.
Despite indications of strong demand, there were few shocks in Apple’s most recent gadget launches. New phones from Huawei Technologies Co. may pose a competitive challenge amid worries about government limitations on iPhones in China, which account for about a quarter of Apple’s revenue. Apple’s efforts to build semiconductors internally may be taking longer than anticipated. Microsoft’s president, Brad Smith, told lawmakers this week that only about 2 per cent of their revenue comes from China.
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 broken down by size have dramatically diverged as a result of the great outperformance by Wall Street’s largest stocks. In 2023, the S&P 500 tech sector index increased by 38 per cent, whereas an analogous mid-cap index only increased by 16 per cent. Meanwhile, the small-cap tech stock index has increased by less than 11 per cent.
(With inputs from Bloomberg)
