Worries about smartphone demand have been blamed for Microsoft’s stock market value ending a trading session higher than Apple’s last week for the first time since 2021.

How Much?

Microsoft adding 1 per cent to its stock value compared to just a 0.2 per cent rise from Apple saw Microsoft’s value (market capitalisation) reach an eye-watering $2.887 trillion, compared to Apple’s $2.875 trillion value. LSED data reported that this was Microsoft’s highest-ever valuation.

What Smartphone Demand Worries?

Apple’s iPhone is still its main cash-cow and a recent cooling in demand for it has worried investors, affecting its market value. Most notably, recent demand worries over Apple’s iPhone can be attributed to:

– Apple facing increased competition from companies like Huawei in China at the same time as China’s economy is making a slow recovery from the COVID-19 pandemic.

– Market saturation in the US, meaning a slower pace of customers switching to the newer iPhone models. Analysts predict that Apple’s sales in the U.S. will struggle, experiencing a year-over-year decline.

– Global challenges to the smartphone industry in recent times, such as component shortages, inventory build-up, and lengthening replacement cycles, all compounded by an uncertain macroeconomic environment.

– Internal (but very public) Apple issues, e.g. the (temporary) pause in sales of its latest smartwatch models due to a ruling by the International Trade Commission, and the huge payouts due to those affected by the iPhone throttling scandal.

What Is Microsoft Doing Right?

Microsoft’s stock value overtaking Apple’s isn’t just down to Apple underperforming. Things that Microsoft has done that have had a positive impact on its own stock value are mainly related to it being a major player and investor in AI. For example:

– The incorporation of OpenAI’s technology (with whom it is an investor and partner – a strategic relationship) across its suite of productivity software (Copilot) that also boost its cloud-computing business in the July-September quarter.

– Its move into AI and incorporating it in its products and Bing helping to challenge Google’s dominance of web search.

– The monetisation of Microsoft’s AI products and services, helping to drive its share value upwards.

– Diversification and growth in cloud computing and gaming. For example, the acquisition of video game developer Activision Blizzard has helped Microsoft to control popular titles.

– Substantial investments in AI infrastructure, including a $3.2 billion investment in expanding its AI data centre infrastructure in the UK, thereby strategically enhancing its AI capabilities, and asserting dominance in the AI sector.

What Does This Mean For Your Business?

Microsoft has been a dominant force in the technology world for over four decades but Apple, which has also been around over four decades became the first £3 trillion dollar company last summer. However, with Apple still reliant on its iPhone, which has been around since 2007 as its main cash cow, a slowing in demand (and slump in China), coupled with Microsoft’s gains in cloud computing with its Azure and its major investment in AI has resulted in Microsoft’s significant creep ahead.

Microsoft’s leadership by CEO Satya Nadella (who took over in 2014), its ability to adapt and innovate, and its strategic partnership with OpenAI has all played major roles in its resurgence. That said, it’s facing an antitrust investigation over its apparent closeness to OpenAI which could be a threat to Microsoft’s momentum.

For Apple, all this could signal a need to further innovate and diversify its product offerings and strategies to maintain its competitive edge. Broadly speaking then, Microsoft overtaking Apple’s value for the first time since 2021 could be viewed as reflecting the growing importance and impact of AI and cloud computing in the tech landscape.