Market Cap Race: How Does Apple Stay in Contention With Microsoft?

The iPhone maker has flat revenue at best, while the software titan enjoys major top-line growth.


The race continues for market cap supremacy between Apple Inc. and Microsoft Corp., with Microsoft finally edging past $3 trillion this week, pulling closer to Apple, which had crossed that line last year.

That Apple wears the capitalization crown is all the more remarkable because Microsoft boasts far better revenue growth and is not tethered to sometimes-cyclical hardware, as Apple is. The big questions are how Apple, with revenue that has dipped over the past four quarters, has seen its stock vault ever higher and whether that can persist in the years ahead. Maybe the answer lies in Apple’s long and illustrious ability to innovate.

While the duo’s stock has been trading places at No. 1 over the past year, Apple has most often been in the lead. The stock ascents have been breathtaking, with Apple passing the $1 trillion mark in 2018 and Microsoft in 2021. As of Thursday morning, each is valued on par with the gross domestic product of the U.K., the world’s sixth largest economy: Apple is at $3.023 trillion and Microsoft at $3.022 trillion.

For investors, the competition between these two is emblematic of how Big Tech rules the stock market, thanks to mighty feats of levitation. Apple and Microsoft are in the vanguard of the Magnificent Seven, that hotshot crew of tech titans that dominate the S&P 500, controlling about one-third of the index’s valuation.

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Ranked behind Apple and Microsoft are Google-parent Alphabet Inc. (value: $1.87 trillion), e-tailer Amazon Inc. ($1.63 trillion), chipmaker Nvidia Corp. ($1.54 trillion), Facebook-owner Meta Platforms Inc. ($1.02 trillion) and electric vehicle manufacturer Tesla Inc. ($673 billion).

Microsoft has the best market momentum. Over the last 12 months, its stock has surged 67.3%, while Apple’s is ahead 37.1%. When Microsoft reports on January 30, analysts expect revenue for the December-ending quarter to advance 14%. Apple, reporting February 1, is anticipated to be up merely 1%. As of the most recent quarter, Microsoft had the better gross margins (although both are plenty plush): 69% versus 45%.

CFRA Research rates Microsoft a “strong buy” and Apple just a “buy.” “We love Microsoft the most,” says Angelo Zino, a senior analyst at the firm. “It is less consumer-driven, and Apple is the ultimate consumer company.” Consumers, of course, can be fickle. Microsoft’s business customers, not so much.

Microsoft is based on several thriving parts: the company’s traditional office-centric software, its cloud service, Azure, and gaming—the recent $70 billion purchase of Activision stands to cement its position in that arena. Plus, Microsoft is becoming a force in the hot new thing, artificial intelligence, as the biggest investor in AI software leader OpenAI.

Capital spending is high at Microsoft, which does not hesitate to make acquisitions, a la Activision. “They know when to write a check,” observes Michael Sansoterra, CIO at Silvant Capital Management LLC, which runs investments for institutions. Microsoft has four times the capital spending Apple does, much of it earmarked for buyouts.

Apple’s business rests largely upon the iPhone, which generates half of its revenue. The company has encountered some softness in phone revenue, partly owing to the economic woes in China, a key market, but Apple maintains its global leadership. The ever-present worry about this signal product is that it will reach saturation among consumers. “Once you have taken over the world, there’s not much growth” room left, says Brian Frank, CIO of Frank Funds, which runs retail mutual funds and manages institutions’ portfolios.

Still, Apple has shown time and again that it can innovate extremely well, which some strategists say explains why it remains the world’s most valuable company. Steve Jobs’ business did not invent the laptop, the smartphone or the smartwatch. But it refined them and made them very popular. “No one can innovate like Apple,” says Silvant’s Sansoterra. “They don’t need to be first; they know how to be better.”

In that spirit, Apple is bringing out its own augmented reality headset, called Vision Pro. Early orders, which just began January 19, are robust, and deliveries start on February 2.

While Apple is a notoriously secretive outfit and its plans can be hard to divine, CFRA’s Zino can see where CEO Tim Cook might be taking the product, trying to push the device beyond a mere toy. Vision Pro can be useful in “spacial computing,” he says. This means possible applications such as self-driving cars and AI glasses with facial recognition. Think specs that deliver information on that possible client standing and smiling in front of you, whose name you have forgotten.

In the meantime, Apple has the benefit of a bountiful cash trove, which it uses for a generous share buyback program. That cannot hurt its stock price, which, despite all the fretting about the company, has managed to amaze.

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