Apple Faces Threat to Market Dominance as Microsoft Catches Up

Apple, the tech giant that has long held the title of the world’s most valuable company, is facing increased pressure from Microsoft as its stock takes a hit due to concerns over iPhone sales.

Fresh worries about a decline in smartphone demand have led to a 4% drop in Apple’s shares in the first weeks of 2024, following a remarkable 48% rally in the previous year. Meanwhile, Microsoft has seen a modest 2% increase year to date, building on its impressive 57% surge in 2023. This shift has fueled speculation that Microsoft could soon overtake Apple in market valuation, reported Reuters.

On Wednesday, Apple’s shares slipped by 0.4%, while Microsoft gained 1.6%, further narrowing the gap between the two tech behemoths. As of now, Apple’s market capitalization stands at $2.866 trillion, slightly ahead of Microsoft’s $2.837 trillion value.

The decline in Apple’s market value is notable, considering its peak at $3.081 trillion on December 14, while Microsoft reached $2.844 trillion on November 28.

A concerning factor contributing to Apple’s stock decline is the reported 30% drop in iPhone sales in China during the first week of 2024, as highlighted by Jefferies analysts. The competitive landscape, especially from domestic rivals like Huawei, appears to be intensifying, putting additional strain on Apple’s market position.

Related: Google Says Microsoft Engaging In Anti-Competitive Cloud Practices

Apple’s upcoming product launch of the Vision Pro mixed-reality headset on February 2 is anticipated to be a major event for the company. However, a report from UBS suggests that the sales from this launch might have a limited impact on Apple’s earnings per share in 2024.

This isn’t the first time Microsoft has threatened Apple’s supremacy. Brief instances, including in 2021 during concerns related to supply chain shortages due to the COVID-19 pandemic, saw Microsoft briefly taking the lead as the most valuable company.

Both Apple and Microsoft are currently trading at relatively high forward price-to-earnings ratios. Apple’s forward PE of 28 exceeds its 10-year average of 19, while Microsoft is trading at around 31 times forward earnings, surpassing its 10-year average of 24, according to LSEG data.

In a recent quarterly report, Apple provided a sales forecast for the holiday quarter that fell short of Wall Street expectations. Weak demand for iPads and wearables contributed to this miss. Analysts, on average, predict Apple’s revenue to increase by 0.7% to $117.9 billion for the December quarter, marking its first year-on-year revenue increase in four quarters. Apple is scheduled to report its results on February 1.

On the other hand, analysts expect Microsoft to report a 16% increase in revenue to $61.1 billion in the coming weeks, driven by the continued growth of its cloud business.

Source: Reuters