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A Bite at the Apple

A transfer of power has quietly unfolded. For over a decade, Apple reigned supreme as the undisputed king of the stock market, dethroning Exxon Mobil in 2011 and maintaining its reign almost uninterrupted. However, a seismic shift occurred on a fateful Friday when Microsoft, propelled by a remarkable surge in market value exceeding $1 trillion over the past year, claimed the coveted crown. Microsoft’s market capitalization closed the day at $2.89 trillion, edging ahead of Apple’s $2.87 trillion, as reported by Bloomberg.

This changing of the guard is emblematic of a broader reordering of the stock market, catalyzed by the emergence of generative artificial intelligence (A.I.). This transformative technology, capable of answering queries, crafting images, and coding, has been lauded for its potential to disrupt industries and generate trillions in economic value.

When Apple supplanted Exxon, it marked the dawn of tech supremacy. Companies like Apple, Amazon, Facebook, Microsoft, and Google overshadowed erstwhile market leaders such as Walmart, JPMorgan Chase, and General Motors. While the tech industry still dominates, the latest power shift underscores the pivotal role of generative A.I. in shaping future business landscapes.

Analysts point to the significance of generative A.I. in driving the momentum of leading companies. The combined market value of Microsoft, Nvidia, and Alphabet surged by $2.5 trillion in the past year, outpacing Apple’s comparatively modest share price increase in 2023.

A Decade in the Making

Microsoft’s journey to the forefront of the tech industry’s evolution can be traced back to Satya Nadella’s tenure as the company’s CEO, beginning in 2014. Faced with a company in flux, Nadella steered Microsoft towards cloud computing, transforming it into a formidable rival to Amazon. Subsequently, he made a bold move by betting heavily on generative A.I.
In 2019, Microsoft initiated investments in OpenAI, the startup behind the A.I.-powered ChatGPT chatbot. Nadella’s visionary approach accelerated the integration of generative A.I. into Microsoft’s products, from Bing search engine to the Windows operating system and productivity applications like Excel and Outlook.

The financial results are only now beginning to reflect this strategic shift. Generative A.I. contributed significantly to Azure’s growth in the last quarter, with a $30-a-month offering inside Microsoft’s productivity software released in November. This isn’t the first time Microsoft has surpassed Apple in recent years, but the current shift suggests a fundamental transformation in the tech industry. As Dan Morgan, a portfolio manager at Synovus Trust, observes, the key question is which company possesses the superior strategy to propel them to the next level of a $3.5 trillion market.

Apple, propelled to its zenith by the iPhone’s success, is now facing challenges. Tim Cook’s strategy of shifting focus from selling more iPhones to selling services has shown signs of fatigue. While Microsoft and other tech giants invest in generative A.I., Apple’s foray into the realm has been notably subdued.

The forthcoming release of Apple’s augmented reality headset, the Vision Pro, marks the company’s first major product category since the Apple Watch in 2014. However, analysts remain cautious, projecting sales of fewer than half a million units. As the tech landscape evolves, Apple finds itself at a crossroads, needing to embrace generative A.I. to maintain its status as an innovative tech giant. The winds of change blow, and the tech titans must adapt or risk being left behind in this dynamic market.