On Friday, October 29, 2021, Microsoft surpassed Apple to become the most valuable company globally in market capitalization. At the close of the market on the 29th, the market capitalization of Microsoft stood at $2.49 trillion, and that of Apple Inc. was $2.46 trillion.
Market capitalization is the total market value of shares of a company on a given day. Stock trading affects the value of shares, and if a company’s share is in higher demand, the share value increases, leading to higher market capitalization.
The trends in the past
There has been competition between these two companies for the top spot in the past too. On June 24, 2021, Microsoft crossed $2 trillion market capitalization for the first time and beat Apple in market capitalization. Microsoft had reached this milestone by showcasing Windows 11 for the first time, the first major operating system upgrade since the launch of Windows 10 in 2015.
On August 18, 2020, Apple hit its $2 trillion market capitalization and was the first publicly traded US company to achieve this feat. A few days before that, on July 31, 2020, Apple had surpassed Aramco, the Saudi state-owned oil major, to become the most valuable publicly-traded company in the world.
Apple was also the first company to reach $1 trillion market capitalization on August 2, 2018.
In 2010, Apple had overtaken Microsoft for the first time and retained that spot until 2018.
These rallies in stock prices could have been a result of the heavy stock trading of these top companies.
Reasons behind Microsoft surpassing Apple’s valuation in October 2021
1) Microsoft exceeded analysts’ expectations
Microsoft reported a 22% YoY growth in earnings in its fiscal first quarter, exceeding analysts’ expectations. It is the fastest growth in revenue since 2018. The analysts had projected an expected revenue of $43.97 billion, whereas Microsoft achieved $45.32 billion in revenue. Similarly, the analysts had expected an EPS of $2.07 while Microsoft achieved $2.27 earnings per share.
2) Growth in Microsoft’s products and services
Microsoft’s Intelligent Cloud segment comprises enterprise services, Azure Public Cloud, Windows Server, and SQL Server. This unit has reported a revenue of $16.96 billion, which is 31% higher YoY. Out of which, Azure and other cloud services grew 50% YoY in the said quarter. It became possible because many companies are still operating on the Work-From-Home model.
Similarly, the Productivity and Business Process unit that includes Office and LinkedIn also reported 22% YoY growth to $15.04 billion.
Microsoft’s More Personal Computing business that includes Windows devices, gaming, and search advertising reported revenue of $13.31 billion which translates to 12% growth. The sales of Windows to OEM companies rose by 10%.
3) New product introductions and acquisitions by Microsoft
In the said quarter, Microsoft introduced new Surface PCs and acquired security startups like RiskIQ and CloudKnox. While the former will help Microsoft expand in the security business, the latter can help improve security in the cloud platform by finding and removing permissions granted to virtual identities that employees do not use regularly.
4) Microsoft’s Future Plans
In August 2021, Microsoft announced that it would increase the price of Office 365 in 2022. It will be the first price hike since the launch of Office 365 in 2011, and it will lead to an increase in overall revenue for Microsoft.
In August 2021, many big companies, including Microsoft and US President Biden, held a meeting after multiple cyberattacks. After the meeting, Microsoft CEO Satya Nadella announced that Microsoft would invest $20 billion in providing advanced cyber security tools.
These factors led to a 2% increase in Microsoft’s share price during extended stock trading on Friday, October 29, 2021.
5) Apple missed the Wall Street Journal’s sales expectations
On October 28, 2021, Apple reported that it had missed the Wall Street Journal’s sales expectations in its fiscal fourth quarter. The overall revenue was $83.36 billion against the estimated revenue of $84.85 billion. Although, Apple’s overall revenue grew by 29% on an annual basis and all its product categories showed growth. As a result, during extended stock trading hours, Apple’s shares fell by 3%.
6) Supply chain constraints faced by Apple
Supply chain issues cost Apple $6 billion in sales during the fiscal fourth quarter. Apple CEO Tim Cook said that the impact of supply chain constraints would be worse in the current holiday sales quarter. According to Cook, the effects of pandemic-related manufacturing disruptions in the South-East and the supply chain constraints were more than expected. Even as the pandemic-related disruptions eased in the latter part of October 2021, the ongoing chip shortage still affected the supply chain for most of the products.
7) Apple’s shrinking stock pool
Over the years, Apple has repurchased shares worth $421 billion. In April 2021, it had announced a buyback of shares worth another $90 billion after beating sales expectations in the fiscal second quarter ending March 27, 2021. It has reduced Apple’s stock pool to only 16.4 billion shares leading to lower market capitalization.
8) Few days of iPhone 13 sales and non-inclusion of new products
Though iPhone showed 47% growth YoY, it was lesser than analysts’ expectations because the fourth quarter of the 2021 fiscal year included a few days of iPhone 13 sales. The iPhone 13 was launched in the US on September 14, 2021, and the fiscal fourth quarter ended on September 25. A few days after launch, iPhone sales amounted to $38.87 billion against the expected sales of $41.51 billion.
Similarly, the sales target for the fiscal fourth quarter doesn’t include new products such as the new MacBook Pro, Airpods, and Apple Watch models launched in October 2021.
The stock prices of companies keep going up and down. Microsoft has become the most valuable company globally due to several reasons discussed above. However, Apple’s shares had increased 15% this year but fell by 3% in stock trading in a single day. It made Microsoft surpass Apple as the most valuable publicly-traded company in market capitalization.