For more than a decade, Apple has been the undisputed king of the stock market. It first overtook Exxon Mobil Corp. as the world’s most valuable public company in 2011 and has held the title almost without interruption.
But the transfer of power has begun.
Microsoft on Friday overtook Apple, taking the crown after its market value rose by more than a trillion dollars over the past year. Microsoft ended the day at $2.89 trillion, higher than Apple’s $2.87 trillion, according to Bloomberg.
This change is part of the stock market realignment that began with the advent of generative artificial intelligence. The technology, which can answer questions, create images, and write code, has been praised for its potential to disrupt businesses and create trillions of dollars in economic value.
When Apple replaced Exxon, it ushered in an era of technological superiority. The values of Apple, Amazon, Facebook, Microsoft, and Google have dwarfed previous market leaders like Walmart, JPMorgan Chase, and General Motors.
The technology industry still dominates the top of the list, but the companies with the most momentum have put generative AI at the forefront of their future business plans. The combined value of Microsoft, Nvidia and Alphabet, Google’s parent company, rose by $2.5 trillion last year. Their performance outperformed Apple, which recorded a smaller increase in its stock price in 2023.
“It’s simply about the AI generation,” said Brad Reback, an analyst at investment bank Stifel. Generative AI will have an impact on all of Microsoft’s businesses, including its largest, while “Apple doesn’t have much of an AI story yet,” he said.
Microsoft and Apple declined to comment.
Microsoft has not led a technological transformation since the era of personal computing, when its Windows operating system dominated sales. The advent of the Internet, mobile phones and social media has been delayed.
When Satya Nadella became Microsoft’s CEO in 2014, the company was floundering. It has refocused it on its growing cloud computing business, turning it into a strong competitor to Amazon, the industry leader. Then Mr. Nadella pushed the company forward again, betting big on generative AI
In 2019, Mr. Nadella made the first of many Microsoft investments in OpenAI, the startup that will build the AI-powered ChatGPT chatbot. At the end of the summer of 2022, he was impressed by a preview of OpenAI’s core technology, known as GPT-4, and quickly began urging Microsoft to add generative AI to its products at what he called a “frenetic pace.”
He started by adding a chatbot to the Bing search engine, but then began pushing AI into Windows and productivity applications like Excel and Outlook, and offering OpenAI systems to customers of Azure, Microsoft’s flagship cloud computing product.
Revenue is just starting to show up in Microsoft’s financial results. Generative AI contributed about three percentage points of growth to Azure in the three months that ended in September, and a $30-per-month offering within Microsoft’s productivity software began a general release only in November.
(The New York Times has filed a lawsuit against OpenAI and Microsoft, accusing them of copyright infringement.)
This isn’t the first time Microsoft has outperformed Apple in recent years. It did so in 2018, when its cloud computing business began to boom, and in 2021, when the pandemic disrupted Apple’s iPhone operations. But this change could be more indicative of a fundamental shift in the technology industry.
“The question is: Who has the best mousetrap to get to the next level of $3.5 trillion?” said Dan Morgan, portfolio manager and analyst at Synovus Trust, a bank in the Southeast. “You can make the case that Microsoft is better off. Apple has been struggling for the next big thing.
The iPhone, which debuted in 2007, helped propel Apple to the top of the stock market. Between 2009 and 2015, the company went from selling 20 million iPhones a year to more than 200 million.
When hardware sales slowed in recent years, Apple CEO Tim Cook shifted the company’s focus from selling more iPhones to selling people more apps and services on existing iPhones. This strategy helped Apple’s annual revenues rise to $383 billion, an almost four-fold increase from the end of 2011, the year in which Steve Jobs, Apple’s co-founder, died.
Mr. Cook’s strategy has shown signs of fatigue. The iPhone, which accounts for more than half of Apple’s revenue, has become known more for its incremental improvements each year than its noteworthy innovations. iPad and Mac purchases are down. Sales growth for its services such as Apple Music is slowing.
Last year, the company’s sales declined for four consecutive quarters. But Apple shares rose about 50 percent last year, and investors raised its market value to nearly $3 trillion because of their belief that demand for the iPhone will continue.
Wall Street analysts expect iPhone sales this year to be weak. The company faces challenges in China, where Huawei has released a new phone and the government is restricting the use of foreign smartphones.
While Microsoft and others are building new businesses in artificial intelligence, Apple has been absent from the conversation. During a call with analysts last year, Mr. Cook said Apple had “ongoing” work related to artificial intelligence, but he declined to go into detail.
Last year, Apple engineers were testing a large language model that could power a chatbot, the Times reported. The company has also been in discussions with publishers about sourcing materials for training generative AI systems. But she has not posted anything publicly yet.
“Apple needs to note that if it wants to maintain its position as one of the most innovative technology companies, it has to get behind AI in a big way,” said Gene Munster, managing partner at Deepwater Asset Management.
Apple focused on launching the Vision Pro augmented reality headset. The device, which will ship on February 2, is the first major new category of product the company has released since the Apple Watch in 2014. Analysts expect Apple to sell fewer than half a million units.