For more than a decade, Apple was the undisputed king of the stock market. In 2011, the company overtook Exxon Mobil as the most valuable publicly traded company in the world for the first time and has held this title almost continuously.
But a transfer of power has begun.
On Friday, Microsoft overtook Apple to take the crown after the company's market value rose by more than $1 trillion last year. Microsoft ended the day valued at $2.89 trillion, more than Apple's $2.87 trillion, according to Bloomberg.
The change is part of a reorganization of the stock market set in motion by the emergence of generative artificial intelligence. The technology, which can answer questions, create images and write code, is being 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 supremacy. The values of Apple, Amazon, Facebook, Microsoft and Google dwarfed previous leaders such as Walmart, JPMorgan Chase and General Motors.
The tech industry remains at 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 saw a smaller share price increase in 2023.
“It just depends on the genetic AI,” said Brad Reback, an analyst at investment bank Stifel. Generative AI will have an impact on all of Microsoft's businesses, including its largest, he said, while “Apple doesn't have a big AI story yet.”
Microsoft and Apple declined to comment.
Microsoft hasn't driven technology change since the personal computing era, when its Windows operating system dominated sales. It was late on the internet, cell phones, and social media.
When Satya Nadella became CEO of Microsoft in 2014, the company was floundering. He refocused the company on the growing cloud computing business and turned it into a strong competitor to Amazon, the pioneer in the field. Then Mr. Nadella pushed the company forward again and aggressively focused on generative AI
In 2019, Mr. Nadella made the first of several investments by Microsoft in OpenAI, the startup that would develop the AI-powered ChatGPT chatbot. At the end of the summer of 2022, he was impressed by a preview of OpenAI's underlying technology, known as GPT-4, and soon began pushing Microsoft to add generative AI to its products, which he described as a “breakfast pace.”
He started by adding a chatbot to the Bing search engine, but then began integrating AI into the Windows operating system and productive applications such as Excel and Outlook, and offering the OpenAI systems to customers of Azure, Microsoft's flagship cloud computing product .
The revenue is just starting to show up in Microsoft's financial results. Generative AI contributed about three percentage points to Azure's growth in the three months ending in September, and the $30-a-month offering within Microsoft's productivity software didn't start general release until November.
(The New York Times has sued OpenAI and Microsoft, accusing them of copyright infringement.)
This isn't the first time in recent years that Microsoft has overtaken Apple. This happened in 2018, when the cloud computing business began to flourish, and in 2021, when the pandemic crippled Apple's iPhone operations. However, this change could be more indicative of a fundamental shift in the technology industry.
“The question is: Who has the better mousetrap to get to the next level of $3.5 trillion?” said Dan Morgan, portfolio manager and analyst at Synovus Trust, a Southeast bank. “You can argue that Microsoft is in a better position. Apple has been fighting to be the next big thing.”
The iPhone, first introduced in 2007, catapulted Apple to the top of the stock market. Between 2009 and 2015, the company increased sales from 20 million iPhones per year to over 200 million.
As device sales slowed in recent years, Apple CEO Tim Cook shifted the company's focus from selling more iPhones to selling more apps and services on their existing iPhones. The strategy helped Apple's annual revenue rise to $383 billion, a nearly four-fold increase from the end of 2011, the year Apple co-founder Steve Jobs died.
Mr Cook's strategy is showing signs of fatigue. The iPhone, which accounts for more than half of Apple's sales, has become known more for its annual improvements than for its notable innovations. Purchases of iPads and Macs have declined. And revenue growth for its services like Apple Music is slowing.
Last year, the company's sales fell for four quarters in a row. Still, Apple shares rose about 50 percent last year and investors boosted the market value to nearly $3 trillion on expectations that demand for the iPhone would continue.
Wall Street analysts have predicted that iPhone sales will be weak this year. 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 generative AI companies, Apple was absent from the discussion. During a call with analysts last year, Mr. Cook said Apple had “ongoing” work related to AI, but declined to elaborate.
Last year, Apple engineers tested a large language model that can power a chatbot, The Times reported. The company has also been in discussions with publishers about sourcing materials to train generative AI systems. However, nothing has been released publicly yet.
“Apple must realize that if they want to maintain their place as one of the most innovative technology companies, they must make a strong commitment to AI,” said Gene Munster, managing partner at Deepwater Asset Management.
Apple has focused on releasing an augmented reality headset, the Vision Pro. The device, which ships on February 2, is the first major new product category the company has released since the Apple Watch in 2014. Analysts expect Apple to sell fewer than half a million units.