Microsoft, the most valuable company

Microsoft briefly reclaimed its title as the world’s most valuable company from its longstanding rival Apple, almost two decades after it sat atop the stock market rankings.

Background

Microsoft Corporation is an American multinational technology company headquartered in Redmond, Washington. It develops, manufactures, licenses supports, and sells computer software, consumer electronics, personal computers, and services. Its best-known software products are the Microsoft Windows line of operating systems, the Microsoft Office suite, and the Internet Explorer and Edge web browsers. Its flagship hardware products are the Xbox video game consoles and the Microsoft Surface line up of touchscreen personal computers. The word "Microsoft" is a portmanteau of "microcomputer" and "software".

Since Satya Nadella took over as CEO in 2014, the company has scaled back on hardware and has instead focused on cloud computing, a move that helped the company's shares reach its highest value since December 1999. As of 2018, it is the world's largest software maker with a revenue of $90 billion, and one of the world's most valuable companies.

Analysis

Microsoft Corp. surpassed Apple Inc. to become the world’s most valuable publicly traded company. Due to its consistently strong performances over the last three quarters, Microsoft’s shares have grown despite the tech-stock sell-offs of the previous month.

The moment capped a five-year rally for the technology group that has seen its stock price increase nearly three-fold. Most of that rise has come under chief executive Satya Nadella, who has overseen stabilisation in Microsoft’s traditional Windows and Office software businesses, as well as surging growth in cloud computing.

A recent stock market slide has taken a toll on nearly all technology companies. However, investors have punished consumer-focused companies like Apple and Amazon.com Inc. more than firms that mostly cater to businesses, like Microsoft. The Microsoft Stock is down 6.3 per cent since the start of October, while Apple has lost 23 per cent.

Apple has been the world’s most valuable company for about seven years, having overtaken ExxonMobil in 2011. Earlier this year, the iPhone maker became the first public company to be valued at more than $1tn. Apple and Microsoft have been close to neck-and-neck in market capitalisation for the past two days. At the close of trading on the 27th of November, the iPhone maker was once again ahead, with a market value of $827bn, compared to Microsoft’s $822bn.

Microsoft has remained insulated from the wider sell-off among tech companies in recent weeks, bolstered by a resurgence in the PC market as well as its strength in the cloud, where it sits in second place behind Amazon.

Apple has also been under renewed pressure from investors. President Donald Trump suggested in a Wall Street Journal interview that iPhones might be caught up in the next wave of tariffs on goods imported to the US from China. The president’s comments will further the darkening outlook for iPhone sales. Apple has lost some $200bn in market capitalisation since announcing fourth-quarter results at the start of November.

As well as issuing guidance that fell short of Wall Street’s expectations, Apple said it would no longer provide unit sales figures for the iPhone or its other devices, fuelling fears that demand for its most profitable product has peaked.

Assessment

Our assessment is that Microsoft’s B2B-oriented revenue base protected it from the downward spiral of key tech companies like Amazon, Apple and Facebook over the past month. We believe that Microsoft’s resurgence is a result of an intensive restructuring of the company under CEO Satya Nadella and we also feel that its consumer-focused products will receive a boost in the upcoming holiday season.