It was about two and a half years ago when Apple (NASDAQ:AAPL) reached a major milestone in its return to glory: It surpassed oil giant Exxon to become the largest company in the world, as measured by market capitalization. Apple's watershed moment was especially sweet for long-time iFanatics that had weathered a nearly 15-year storm before it completed the transformation from also-ran to world leader; thanks to the return of its savior, Steve Jobs.

In Aug. 2011 when Apple and its $337 billion market cap supplanted Exxon as king of the hill, Google (NASDAQ:GOOGL) was valued at a paltry $177 billion. At the time, the notion that Google had a chance to pass Apple as the world's most valuable company in the foreseeable future would have seemed outlandish. But if recent trends continue, and there are reasons to believe they will, we'll have a new value-leader before this year's out.

The tables have turned
Last year at this time, Google's market cap stood at about $248 billion, compared to Apple's $430 billion. As iFans know, even with a substantial market cap lead over Google at this time last year, Apple's $430 billion market cap was significantly lower than it was even a few months before that, when it topped out at $656 billion in Sept. of 2012.

Now, fast-forward to today. Google's market cap of $375 billion still trails Apple's $456 billion, but is quickly making up ground. Google's nearly 50% jump in share price the past 12 months, coupled with Apple's 9% decline in the same period, are the reasons for the dramatic change in valuations. The questions are, why the about-face, and will it continue?

Behind Apple's numbers
One thing was clear even before Apple's recent earnings release: Its investors operate under a different set of rules and expectations than most. Despite setting all-time records for iPhone sales in a quarter – Apple moved 51 million smartphones in its fiscal 2014 Q1 – and establishing a new high by selling 26 million iPads, Apple stock is getting battered.

The problem? Even after setting iPhone sales records, apparently Apple's results were below analyst expectations. Adding to the pressure on Apple's stock price was its rather tepid forecast for Q2. According to some industry pundits, Apple's recent deal with China Mobile should have pushed fiscal 2014 Q2 smartphone sales to even loftier heights, but it may not happen based on its forecast. And Apple's Q2 revenues are expected to only match the year-ago quarter, so questions are being raised.

Margin pressure is another concern often mentioned by Apple bears, particularly as the smartphone industry becomes even more hyper-competitive, and pricing becomes an issue. But it's Apple's perceived lack of innovation, historically an area of unrivaled strength, that's causing the most angst among naysayers. And it's here that Google really shines.

Where Apple struggles, Google excels
It's not Google's dominant smartphone OS market share or stellar financial performance that differentiates it from Apple, or why it's on pace to surpass its rival as the most valuable company on earth, it's innovation. While Apple rumors generally entail a new smartphone's size, color, or equally unimportant feature, Google's setting cities up with Fiber Internet connections.

And while Apple is supposedly preparing to release a phablet sometime this decade, Google is exploring artificial intelligence (AI), self-driving cars, and using white space to bring the Internet to under-served markets. As Google pushes the envelope, Apple is still putting all its eggs in the same, old basket.

Perception is becoming reality, and the perception is that Google is leading the world with innovative products and services, and that will translate to long-term growth. That's why Google is on track to becoming the most valuable company in the world before this year's out, and it doesn't appear Apple is doing anything to prevent it.

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Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, China Mobile, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.