Microsoft Tops Apple as Most Valuable Company: Indicative for Structural Shift in the Tech Sector?
On Friday, the 11th of January, Microsoft topped Apple in terms of market value, gaining the title of most valuable company in the world. The domination was short-lived, as Apple quickly took back the crown, but the event suggests a structural shift in the tech sector.
There have been a few occasions in the past decade in which Microsoft has briefly surpassed Apple. Most notoriously and recently, in 2021, we have witnessed a dip in production of iPhones and other Apple products as a result of the shortage in chips and semiconductors, allowing Microsoft to get a slight edge. But also 2016, 2018, and 2020 have seen instances of one company inching over the other. So, what makes this case different?
What we have seen this past Friday is the result of two long-term trends that could determine the future trajectory of the two companies and the sector as a whole.
Microsoft has notably been dormant on disruptive innovations since the early personal computing era, failing to enter emerging tech markets. Apple on the other hand has in the past focused on viewing technology through an innovative lens and revolutionizing many markets along the way. Examples of such seem immediately apparent when one thinks of the iPhone (2007), the AppStore (2008), the iPad (2010) and the Apple Watch (2015). But both companies are changing their approach.
Satya Nadella, CEO of Microsoft, has now been aiming to put Microsoft in a leading position within the emerging field of generative AI. Microsoft has committed to high levels of investments in a for-profit subsidiary that was created by the non-profit OpenAI. The complex structure of relationships and deals is laid out in the graphic below (FT.com).
Source: Financial Times
After Chat GPT was released in late 2022, Microsoft was eager to start with the implementation of AI assistants into existing Microsoft products. Microsoft started by adding an AI chatbot to the Bing search engine. Soon the AI was also introduced to the Windows operating system, as well as to other Microsoft products such as Excel or Outlook. The initial investment allowed the tech giant to gain access to the technology, and Microsoft is now starting to see the profits flowing in.
At the same time, Apple is changing direction, away from selling devices to selling apps. With the rise of cloud-based services, focus on digital products has become more appealing for the company. This is interesting, considering that the sale of the iPhone accounts for over half of the company’s profits. The change in strategy comes with a steady decline in radical innovation of the technical aspects of the hardware. Apple focuses more on design and app features than on actual technical improvement. At the same time, Apple is late on AI. While development is happening in the background, Apple has not been able to capitalize on AI, the same way Microsoft has.
Time will show if Apple can catch up with current pioneers in the sector. These pioneers, Microsoft, Nvidia, and Alphabet, increased their value by 2.5 trillion dollars last year, while Apple wasn't able to report this kind of growth.
Ferdinando Angeloni