Microsoft Surpasses Apple to Become World’s Most Valuable Company Amid Growing Concerns Over iPhone Demand

In a significant market shift, Microsoft has overtaken Apple to claim the title of the world’s most valuable company on Thursday. Microsoft’s shares rose by 1.6%, pushing its market valuation to $2.875 trillion, fueled by its early dominance in the race to capitalize on generative artificial intelligence.

Meanwhile, Apple experienced a 0.9% decline, resulting in a market capitalization of $2.871 trillion. This marks the first instance since 2021 that Apple’s valuation has fallen below that of Microsoft. Apple’s stock has faced a 3.3% decline in January, reflecting concerns about weakening demand, particularly for its flagship product, the iPhone.

Analysts attribute Microsoft’s ascent to its faster growth and significant gains anticipated from the generative AI revolution. D.A. Davidson analyst Gil Luria stated, “It was inevitable that Microsoft would overtake Apple since Microsoft is growing faster and has more to benefit from the generative AI revolution.”

Apple’s recent stock decline follows a series of rating downgrades, raising worries about sustained weakness in iPhone sales, especially in crucial markets like China. Concerns about increased competition from Huawei and escalating Sino-U.S. tensions have also impacted Apple’s performance.

Redburn Atlantic noted in a client note that China might pose challenges to Apple’s future performance, while its services business faces threats amid regulatory scrutiny of a Google deal that makes it the default search engine on iOS.

Microsoft’s 2023 aggressive rollout of genAI-powered tools, thanks to its collaboration with ChatGPT-maker OpenAI, contributed to its impressive 57% rise last year, outpacing Apple’s 48% gain.

This shift in market dynamics reflects Wall Street’s current positive sentiment toward Microsoft, with nearly 90% of brokerages recommending buying the stock. In contrast, Apple faces two “sell” ratings, and only two-thirds of analysts covering the company rate it as a “buy.”

While both stocks appear relatively expensive based on their forward price-to-earnings ratios, Apple is trading at a forward PE of 28, above its 10-year average of 19. Microsoft, trading at around 31 times forward earnings, also exceeds its 10-year average of 24, according to LSEG data.