Thanks to Microsoft’s early leadership in artificial intelligence, the software heavyweight’s market value could significantly outpace Apple’s over the next five years, 13 institutional investors unanimously said ahead of the tech titans’ quarterly results this week.
Microsoft’s stock is up 7% in 2024, pushing its market value to more than $3 trillion, while Apple has been dethroned as the world’s most valuable company. As of Friday, the Redmond, Washington-based software maker’s market capitalization was several billion dollars higher than Apple’s. Asked which company will be more valuable in five years, all 13 investment strategists and portfolio managers consulted by Reuters last week said they expected Microsoft to surpass Apple. Stock prices and valuations could change this week when Microsoft reports its quarterly results on Tuesday and Apple on Thursday. In the long term, however, all investors consulted by Reuters believe Microsoft’s recent successes in generative artificial intelligence give it a serious advantage over Apple.
Still, the race between Apple and Microsoft could turn into a race for second place, some say, citing the huge successes of Nvidia, whose chips have helped revolutionize artificial intelligence. Microsoft has made its first investment in OpenAI, the company that creates ChatGPT, and is incorporating generative AI technology into its business. AI is likely to benefit Microsoft’s cloud computing offerings as the company competes with Amazon and Alphabet in this growing market. In its app business, Outlook now offers users artificial intelligence assistance in composing emails.
Apple has been slowly incorporating artificial intelligence into features of its products, such as taking better photos on the iPhone, but investors will want to hear more about its AI plans when the company reports its December quarter results. They’ll also be keeping an eye on China, where iPhone demand has fallen due to a slow economic recovery from the COVID-19 pandemic, and a resurgent Huawei is cutting into the Cupertino, California-based company’s market share.
The Vision Pro mixed reality headset, the most expensive in a decade, launches in the U.S. on Friday. Since Steve Jobs launched the iPhone in 2007, Apple shares have surged more than 4,300%, helping Apple overtake Exxon Mobil in 2011 as the most valuable company on Wall Street and making it a cornerstone investment for portfolio managers trying to outperform the S&P 500.
With investors concerned about low demand for iPhones in China, Apple shares are not yet rising in 2024, trailing the S&P 500’s nearly 2.5% gain and Microsoft’s 7% rise this year.
Microsoft stock is also up 57% in 2023, thanks to its leadership in generative artificial intelligence. The stock is now trading at 33 times expected earnings, according to LSEG, while Apple’s projected PE is 28 and the S&P 500’s is around 20.
“These are quality growth companies … but to justify those valuations, they need to continue to grow at an aggressive rate. You’re going to need productivity gains, and I think Microsoft is better positioned to do that than Apple,” said Mike Dixon, head of research at Horizon Investments.
According to LSEG, fifty Wall Street analysts recommend buying Microsoft stock, while four analysts have a neutral rating and none recommend selling. Apple has 26 positive analyst ratings and 12 neutral, while two analysts recommend selling, including a downgrade to Underweight from Barclays this month over concerns about “weak” iPhone sales.
Nvidia, which has become the most expensive chipmaker after its shares more than tripled last year, could become a contender for the title of the world’s most valuable company in the next few years, said Wayne Kaufman, chief market analyst at Phoenix Financial Services in New York. Nvidia’s market capitalization surpassed $1.5 trillion last week to become the fifth most valuable company on Wall Street, behind Amazon at less than $200 billion.