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What are the reasons behind Microsoft’s bull rally?

The company’s early investments in AI, coupled with fears of a stagnant smartphone market have seemingly allowed it to sprint past Apple

Microsoft is now the world's most valuable company

Microsoft has eclipsed Apple in terms of market value for the first time since 2021, a development that was solidified with Friday’s trading session, even though Microsoft did nudge past briefly on Thursday. This milestone crowns Microsoft as the world’s most valuable company, with investor concerns over stagnant growth in Apple’s smartphone business.

Microsoft witnessed a modest yet significant ascent, with its shares climbing by 1 percent, culminating in a historic market capitalization of $2.887 trillion, at end of day, Friday. Apple, despite a slight uptick of 0.2 percent in its share value, lagged marginally with a market capitalization of $2.875 trillion. While the two titans have traded places before, this time around, there is more to read into the event. Apple has had a good year in isolation, and its shares have risen by 37.96 percent when compared to the same day last year. However, Microsoft has had an even better year in the markets with a growth of 62.38 percent over the same period. 

Apple’s shares have already retracted by 3 percent this year, juxtaposing sharply with the 48 percent surge witnessed in the preceding year. Microsoft, conversely, has been on an upward trajectory, with a year-to-date increase of about 3 percent following a stellar 57 percent rise in 2023. This surge is partly attributed to Microsoft’s strategic foray into generative artificial intelligence, notably through its investment in OpenAI, the creators of ChatGPT. OpenAI’s tech seems to be making its way into several of Microsoft’s products and the markets are seemingly appreciative of the fact that Microsoft is largely being seen as a first mover in the space. 

The introduction of AI features not only rejuvenated its cloud-computing segment but also positioned Microsoft at the forefront of AI innovation, while also challenging Google’s long-standing supremacy in web search. In contrast, Apple has encountered challenges, particularly with its flagship iPhone. The demand has been lackluster, exacerbated by a sluggish recovery in China’s economy post-COVID-19 and increasing market competition, notably from Huawei. Furthermore, the impending release of Apple’s Vision Pro mixed-reality headset, while being a significant product launch, is projected to have a minimal impact on Apple’s 2024 financials. 

That said, expect these companies to take chances at dislodging each other on the top step of the podium as this year brings important product launches (for Apple) and by all accounts, a more mature market (for Microsoft and all generative AI).

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