For over a decade, Apple was the undisputed king of the stock market. It first overtook Exxon Mobil as the world’s most valuable public company in 2011 and has held the title almost continuously.
But a transfer of power has begun.
Microsoft overtook Apple on Friday, taking the crown after its market value increased by more than $1 trillion over the last year. Microsoft ended the day at $2.89 trillion, more than Apple’s $2.87 trillion, according to Bloomberg.
This change is part of a reorganization of the stock market triggered by the advent of generative artificial intelligence. The technology, capable of answering questions, creating images and writing code, has been hailed for its potential to disrupt businesses and create billions of dollars in economic value.
When Apple replaced Exxon, it ushered in an era of technological supremacy. The stocks of Apple, Amazon, Facebook, Microsoft and Google have eclipsed former market leaders like Walmart, JPMorgan Chase and General Motors.
The tech industry still dominates at the top of the list, but the most dynamic companies have put generative AI at the forefront of their future business plans. The combined value of Microsoft, Nvidia and Alphabet, Google’s parent company, increased by $2.5 trillion last year. Their performance outperformed Apple, which saw a lower share price rise in 2023.
“It just comes down to generation AI,” said Brad Reback, an analyst at investment bank Stifel. Generative AI will impact all of Microsoft’s businesses, including the largest, he said, while “Apple doesn’t have much of a history in AI yet.”
Microsoft and Apple declined to comment.
Microsoft hasn’t led a technology transition since the personal computing era, when its Windows operating system dominated sales. It was late for the Internet, cell phones and social networks.
When Satya Nadella became CEO of Microsoft in 2014, the company was in flux. He refocused it on the growing cloud computing sector, making it a serious competitor to Amazon, a pioneer in the field. Then Mr. Nadella moved the company forward again, making an aggressive bet on generative AI.
In 2019, Mr. Nadella made the first in a series of investments by Microsoft in OpenAI, the startup that would build the AI-powered chatbot ChatGPT. In late summer 2022, he was impressed with a glimpse of OpenAI’s underlying technology, known as GPT-4, and quickly began producing Microsoft to add generative AI to its produced at what he called a “freaking pace.”
He started by adding a chatbot to the Bing search engine, then began integrating AI into the Windows operating system and productive applications like Excel and Outlook, and offering OpenAI systems to Azure customers, Microsoft’s flagship cloud computing product.
Revenues are just starting to show up in Microsoft’s financial results. Generative AI accounted for about three percentage points of growth for Azure in the three months ended in September, and the $30-per-month offering of Microsoft’s productivity software didn’t begin releasing until November .
(The New York Times sued OpenAI and Microsoft, accusing them of copyright infringement.)
This is not the first time that Microsoft has outpaced Apple in recent years. It did so in 2018, as its cloud computing business began to boom, and in 2021, when the pandemic disrupted Apple’s iPhone operations. But this shift could be more indicative of a fundamental shift in the tech industry.
“The question is: Who has the best mousetrap to get to the next $3.5 trillion level? said Dan Morgan, portfolio manager and analyst at Synovus Trust, a Southeast bank. “You can make the argument that Microsoft is in the best position. “Apple is fighting for the next big thing.”
The iPhone, launched in 2007, propelled Apple to the top of the stock market. Between 2009 and 2015, the company went from selling 20 million iPhones per year to more than 200 million.
When device sales slowed in recent years, Tim Cook, Apple’s chief executive, shifted the company’s focus from selling more iPhones to selling people more apps and services on their existing iPhones. This strategy allowed Apple’s annual turnover to climb to $383 billion, a nearly fourfold increase compared to the end of 2011, the year of the death of Steve Jobs, Apple co-founder.
Mr Cook’s strategy has shown signs of fatigue. The iPhone, which accounts for more than half of Apple’s revenue, has become more known for its incremental improvements each year than for its remarkable innovations. Purchases of iPads and Macs have declined. And sales growth for its services like Apple Music is slowing.
Last year, the company’s sales fell for four straight quarters. But Apple’s shares still rose about 50% last year, and investors boosted its market value to nearly $3 trillion because they believed demand for the iPhone would pursue.
Wall Street analysts predict iPhone sales will be weak this year. The company faces challenges in China, where Huawei launched a new phone and the government restricts the use of foreign smartphones.
While Microsoft and others have created new generative AI businesses, Apple has been absent from the conversation. On a call with analysts last year, Mr. Cook said Apple had work “in progress” related to AI, but he declined to elaborate.
Last year, Apple engineers were testing a large language model, capable of powering a chatbot, the Times reported. The company has also had discussions with publishers regarding acquiring hardware to train generative AI systems. But he hasn’t made anything public yet.
“Apple needs to realize that if it wants to maintain its place among the most innovative technology companies, it needs to support AI in a meaningful way,” said Gene Munster, managing partner at Deepwater Asset Management.
Apple has focused on the launch of an augmented reality headset, the Vision Pro, which goes on sale on February 2 and is the first major new product category launched by the company since the Apple Watch in 2014. sell less half a million units.