Microsoft's early dominance in artificial intelligence has positioned the software giant to surpass Apple in market value over the next five years, as unanimously agreed upon by 13 institutional investors ahead of their quarterly results this week.
With a 7% surge in its shares in 2024, Microsoft's market value recently exceeded $3 trillion, dethroning Apple as the world's most valuable company. All 13 investment strategists consulted by Reuters expect Microsoft to outpace Apple in value over the next five years.
While share prices may fluctuate after Microsoft reports its quarterly results, the investors believe Microsoft's recent successes in generative AI give it a competitive edge over Apple in the long term. The incorporation of generative AI technology across Microsoft's business, along with early investments in OpenAI (maker of ChatGPT), provides strategic advantages.
Some observers suggest that the race between Apple and Microsoft could transform into a competition for second place, given the significant gains made by Nvidia, whose chips play a crucial role in the AI revolution.
Microsoft's leverage in various areas, such as Azure cloud, gaming, enterprise software, and AI, contributes to its robust position. In contrast, Apple, heavily reliant on the iPhone in a mature market, faces challenges in detailing its strategy for the AI competition.
Investors are keen to hear Apple's plans regarding AI as it quietly integrates the technology into product functions. Apple's flat stock performance in 2024, compared to Microsoft's 7% surge, reflects concerns about soft iPhone demand in China and the company's underperformance against the S&P 500.
Microsoft's lead in generative AI led to a 57% rally in its shares in 2023. With a forward PE of 33, Microsoft's stock is trading at a premium compared to Apple's forward PE of 28 and the S&P 500's approximately 20, according to LSEG.
Analysts, with a bullish outlook, recommend buying Microsoft shares, while Apple faces concerns over "lackluster" iPhone sales, prompting some downgrades.
Nvidia, the most valuable chipmaker, could also contend for the world's most valuable company in the coming years, given its remarkable share performance. After hitting record highs, Nvidia's market capitalization surpassed $1.5 trillion, making it Wall Street's fifth most valuable company.
Analysts draw parallels between Nvidia's current position and Microsoft in the early 90s and Intel in the early 80s, indicating its potential for further growth.