Microsoft eyes dethroning Apple as world’s biggest stock

(Bloomberg) — Microsoft Corp. is closing the gap with Apple Inc. in the stock market as investors see better growth at the software giant and significantly less China risk.

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Shares of the Redmond, Washington-based company have outperformed the iPhone maker this month, bringing its market value closer to that of Apple, which is at the center of tensions with China. While hundreds of billions of dollars still separate the two companies, Microsoft’s position in markets including cloud computing and artificial intelligence makes it more attractive to some investors.

“Microsoft has more to offer than what the market wants right now, and given where we stand on this pair’s growth prospects, we wouldn’t be surprised to see it take on Apple,” said David Klink, senior equity analyst at Huntington Private Bank. Will overtake.”

“We have more confidence in Microsoft’s margins, while cloud and AI are growth areas that could stand the test of more than a decade. We don’t know if the iPhone can do that,” he said. “It’s hard to make a bearish case for Apple given its services business, but the bullish case is clearly in Microsoft’s favor.”

The last time Microsoft was bigger than Apple was in November 2021. Apple’s market cap is near $2.8 trillion, down from a peak of about $3.1 trillion, but still above Microsoft’s about $2.4 trillion. While Apple’s shares have declined this month, Microsoft has remained steady, narrowing the gap between the two to nearly $200 billion at one point last week.

It is quite common on Wall Street to prefer Microsoft over Apple. The company’s recommendation consensus – a proxy for the ratio of buy, hold and sell ratings – is well above Apple’s. Nearly 90% of Microsoft analysts recommend buying the stock, compared to less than two-thirds for Apple.

Although neither stock seems particularly cheap, Microsoft’s growth outlook could make it easier to justify a valuation of 29 times estimated earnings. The software giant is expected to see double-digit growth in revenue and net income per share in fiscal 2024 and the following three years. The consensus reflects the strength of the company’s cloud-computing business, with investors also excited about its backing of OpenAI, the fast-growing startup behind ChatGPIT.

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Apple is coming off three consecutive quarters of negative revenue growth, and the fourth — as analysts expect to see — will represent its longest such stretch in two decades. Although Apple is expected to turn positive in its 2024 fiscal year and grow over the next two years, the rate is not expected to be as strong as Microsoft’s, according to data compiled by Bloomberg.

The iPhone maker is “looking like the old IBM,” wrote Tony Sacconaghi, an analyst at Bernstein. International Business Machines Corp.’s “prowess in mainframes and related account control once seemed invincible,” Sacconaghi warned, adding that “Apple’s main risk is that the iPhone will become a new computing/Internet access platform.” “Being replaced by.”

That new thing could be AI, the hottest investment topic of the year. Needham recently wrote that Apple could fall to fourth place among U.S. stocks, behind Microsoft, Alphabet Inc. and Amazon.com Inc. — because it is “not the main beneficiary of the trend toward generative AI.” Separately, Rosenblatt Securities wrote that Apple’s crown could be threatened by Nvidia Corp., the chipmaker that has been the biggest beneficiary of the AI ​​boom so far, and which is currently less than half the size of Apple.

Apple’s latest device announcements offered few surprises, although there are signs of strong demand. Its efforts to design chips in-house may take longer than expected, while Huawei Technologies Co. amid concerns about government restrictions on iPhones in China. A new phone from Apple Inc., which accounts for about a fifth of Apple’s revenue, could be a competitive threat. By contrast, Microsoft gets less than 2% of its revenue from China, President Brad Smith told senators last week.

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“Stability matters a lot when considering a company’s valuation, and Microsoft has an edge over Apple right now because of its stability and predictable growth rate,” said Tim Grisky, senior portfolio strategist at Ingalls & Snyder. “I like both, but the risk is higher with Apple.”

tech chart of the day

The strong outperformance of Wall Street’s largest stocks led to dramatic differences in the returns of tech stocks categorized by size. The S&P 500 tech sector index is up 38% in 2023, while the peer mid-cap index has gained 16%. Meanwhile, the index of small-cap tech stocks is up less than 11% this year.

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Earnings are due on Tuesday

–With assistance from Kit Rees.

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Source: finance.yahoo.com