Microsoft Catching Apple as World's Most Valuable Company by Market Cap

Paul Ausick

In early October, both Apple Inc. (NASDAQ: AAPL) and Microsoft Corp. (NASDAQ: MSFT) traded at all-time highs. Since then, shares of both companies have declined in value, but the drop in Apple stock has been far steeper than the drop in Microsoft shares.

Early Monday morning, Apple’s market cap totaled $817.7 billion, while Microsoft’s value had reached $816.3 billion. Apple’s market cap peaked at $1.1 trillion less than two months ago.

That $300 billion loss in Apple’s value follows the company’s quarterly earnings report indicating slowing growth in iPhone sales. The prospect of slower growth in sales of the company’s cash cow has sent ripples of fear through investors, who have been mostly selling equities since the first of November.

Apple stock has shed about 25% from its all-time high. Microsoft also has declined in value, but by less than 10% from its own all-time high. Microsoft’s slide has been slower because the company’s cloud business is growing and PC sales are not declining as fast as they were once thought to be, keeping Microsoft’s Windows business ticking along.

In late October, Microsoft passed Amazon to become runner-up to Apple as the world’s most valuable company. The e-commerce giant saw its shares drop sharply after reporting quarterly earnings that missed sales estimates and came with a lower-than-expected forecast for sales in the current quarter.

In Microsoft’s first fiscal quarter that ended in September, productivity software sales rose 19% to $9.8 billion, cloud revenues rose 24% to $8.6 billion and PC revenues rose 15% to $10.7 billion.

In its first fiscal quarter, Apple’s iPhone sales were flat at around 47 million units, although revenues rose by 29% to more than $37 billion. iPad sales were down 6% on a volume basis and 15% on a revenue basis. Mac sales also were down, although revenues rose 3%. The bright spots were services revenue, up 17% to nearly $10 billion, and other product sales (Apple Watch, Beats), up 31%.

And then on the conference call after results were published, Apple officials said the company would no longer report sales volumes for iPhones, iPads and Macs. Many analysts saw this change as a way to cover up declining sales of these products and reacted even more negatively to the earnings report.

Analysts at Morgan Stanley and Loup Ventures pointed to Apple’s growing services business as the company’s way forward to continued growth. The problem with that, from an investor’s viewpoint, is that it will take several years of double-digit growth for the services business to reach the current level of the iPhone business.

At Microsoft, the focus on cloud computing is quickly drawing revenues nearly even with productivity software (Microsoft Office) and not that far behind Windows operating system sales. The horizon is clearer here, and Microsoft’s clear focus on cloud computing is appealing to analysts and investors.