Microsoft's AI surge challenges Apple as iPhone demand wanes

Big tech companies are always in a race, and we recently mentioned how downgrades for Apple made way for another tech player to grab the top spot among US public companies. And guess what? By the end of last week, it actually did it.

Reuters reports that Microsoft now holds the title of the world's most valuable tech company, surpassing Apple in stock market value. This shift occurred as concerns about iPhone demand impacted Apple's shares, allowing Microsoft to claim the top spot for the first time since 2021.

Apple saw a slight increase of 0.2%, whereas Microsoft gained 1%. This pushed Microsoft's market capitalization to a record $2.887 trillion, as reported by LSEG (London Stock Exchange Group) data. In comparison, Apple's market capitalization was $2.875 trillion.

Concerns about a decline in smartphone demand have led to a 3% drop in Apple's shares in 2024, following a 48% increase the previous year. Meanwhile, Microsoft has seen a 3% uptick this year, building on a remarkable 57% surge in 2023. This boost was fueled, in part, by Microsoft's leadership in generative artificial intelligence, including an investment in OpenAI, the creator of ChatGPT.

Microsoft adding OpenAI's tech to its productivity software gave a boost to its cloud-computing business. Plus, being a leader in AI sets Microsoft up to take on Google's rule in web search.

Meanwhile, Apple is facing a slowdown in demand, especially for the iPhone, a significant revenue source. Demand in China, a key market for Apple, has dropped as the country's economy gradually recovers from the impact of the COVID-19 pandemic. Adding to the challenge, the resurgence of Huawei is eroding Apple's market share in the region.

Despite the upcoming launch of Apple's Vision Pro mixed-reality headset on February 2, analysts project its impact on earnings per share in 2024 to be relatively minimal.

This isn't the first time Microsoft has outpaced Apple in value; it happened in 2021, too, due to supply chain issues during the pandemic. Apple also revealed in a recent report that holiday sales might not meet expectations, mainly because fewer people buy iPads and wearables. The competition between Microsoft and Apple is always changing, and right now, Microsoft is leading the way.