Daniel Will's Take on Microsoft vs. Apple

Daniel Will's Take on Microsoft vs. Apple

Recently, the market value of Microsoft (MSFT.US) has been approaching that of Apple (AAPL.US) in the race to become the most valuable company in the United States. In January, Microsoft’s market value was $2.78 trillion, slightly below Apple’s $2.89 trillion. The gap between the two tech giants has narrowed, with Microsoft trailing by only $100 billion.

Apple’s value has decreased from over $3 trillion to $2.89 trillion at the beginning of 2024. If this downward trend continues, the closest competitor, Microsoft, may soon surpass Apple to become the most valuable company.

How did Microsoft narrow the gap with Apple in market capitalization?

• Microsoft’s Strategic Focus on AI Integration Microsoft is capitalizing on the generative AI revolution by incorporating it into products designed for both consumers and businesses. This strategic move is in response to research sponsored by Microsoft, suggesting that generative AI could contribute approximately $100 trillion to the global economy in the next decade. The company has seamlessly integrated its AI feature, Copilot, into Microsoft 365 and Windows 11, offering enhanced security and privacy specifically tailored for enterprise use. Microsoft Copilot has demonstrated its high utility. As new Windows PCs come equipped with a dedicated “Copilot” key, users can anticipate unparalleled access to robust generative AI capabilities. Additionally, Microsoft maintains a significant stake in OpenAI, owning 49% of the company behind ChatGPT, underscoring its commitment through multi-billion-dollar investments in the AI pioneer since January 2023.

• Robust Growth of Azure
Microsoft’s cloud service Azure has delivered an impressive performance. Its expansion has attracted companies of all sizes, gradually relying on Azure’s cloud framework and AI-driven products. This shift towards Microsoft’s expertise in cloud computing could potentially weaken Apple’s predominant position based on hardware.

• Concerns Over Apple’s Declining Sales
 Apple’s stocks have been impacted due to intensified competition from Chinese companies, particularly Huawei. According to Reuters, this has led to a significant 30% decline in iPhone sales in China during the first week of 2024. In the early weeks of 2024, amidst market volatility, Microsoft’s stocks exhibited more stability than Apple’s, boosting investor confidence in Microsoft’s long-term potential.

• Analysts Downgrade Apple Stock Ratings

Barclays Bank (BCS.US) has, for the first time since 2019, revised its outlook on Apple stock, downgrading it from neutral to underweight, indicating an expected performance below the average level.

Shortly thereafter, another financial institution, Pigeon Investments (PIPR.US), also adjusted its stance on Apple, changing the rating from overweight to neutral.

With the support of AI, Microsoft surpassed Apple in the intraday trading on the 12th, finally changing the position of the top stock in the U.S.

Currently, Apple’s growth seems a bit sluggish, and its cash reserves, which were once in the hundreds of billions of dollars in previous years, have shrunk to just over $50 billion. The biggest challenge for Apple now is that it can’t find suitable acquisition targets to spend this money on. Many have previously mentioned a liquidity crisis for Apple, but in reality, this isn’t a significant issue as Apple has a long accounts payable period, which can easily address the concern.

The remaining issue is where to replenish the profits, given the backdrop of declining profits in the traditional lucrative region — China. The “Apple tax” is also likely to decrease, and with both major profit sources contracting, there will be some volatility in stock performance without new strong profit growth points. Several major brokerages are currently showing signs of restlessness, and Apple’s stock price has indeed faced challenges recently.

Without high growth and the addition of new business to expand the market, there is a significant probability of an annual decline in future space and market. Apple’s first principle under Jobs was innovation, and the transition from one year’s product to the current one could keep Cook busy for a decade. This four trillion is really a joke.

Leek mentality and investment bank mentality operate on different levels. 
The current environment reflects Apple’s lack of innovation, relying on its past successes. Tesla has emerged, along with numerous mobile phone brands, gaining an increasing market share. Given these factors, why do some investors still favor this lackluster tech stock, with its year-on-year growth at the bottom and leading declines? Despite its three-year struggle to reach a valuation of three trillion, do you believe the capital market is staging a three-year performance for you? The next opportunity to trap leek investors will be when VisionPro goes public. Leeks are easy to deceive; all it takes is a VisionPro and a promotional article to trick them.