At the end of 2023, Apple (AAPL -0.60%) still holds the title of the world's largest company, but Microsoft (MSFT 1.44%) is nipping at its heels. With Apple at a $2.94 trillion market cap and Microsoft at $2.81 trillion, Microsoft is only a 4.6% gain from taking the lead.
Will Microsoft overtake Apple as the world's largest company in 2024? Let's take a look.
Apple is a more consumer-centric investment
While both Microsoft and Apple have sprawling businesses, the two serve quite different audiences. Apple is almost entirely consumer-focused, with its iPhones, iPads, Apple Watches, and other products serving the general population. This focus can be hit or miss, as the company is entirely tied to consumer confidence. Apple's revenue declines in four straight quarters paint a clear picture of the state of the consumer.
Microsoft is more balanced, as it has consumer- and business-centered products. However, with the rise of its Azure cloud computing product, Microsoft is shifting more toward being a business-to-business investment. Contrary to Apple's revenue decline, Microsoft has done much better over the past 12 months, with revenue in the mid- to high single digits, before posting an impressive 13% growth in its latest quarter.
The argument of which company will be larger at the end of 2024 boils down to one question: What will be stronger, the consumer or business? With the momentum Microsoft has in key trends like cloud computing and artificial intelligence (AI), I'd say it's hard to argue against it.
Microsoft's prospects are much brighter than Apple's
Although Apple has multiple products, iPhone sales make up about half its revenue. This makes it one of Apple's most important segments, but the problem is it isn't capturing market share in the U.S. anymore. Since 2020, the iPhone has maintained its high 50% market share in the U.S. and hasn't increased. Unless Apple creates a new product that convinces Android users to switch, this may represent the top end of the market share it can capture in the U.S.
Worldwide is a different story, as Apple only has about a 16% market share. For Apple to grow past its current point, it must expand its global footprint, create an innovative new product, or continue expanding its services division. While all these are possible, they're not nearly as promising as Microsoft's prospects.
Microsoft has multiple irons in the fire, but the greatest hope lies in AI, as Azure and other products are set to benefit. Cloud computing is vital in AI for two reasons. First, for AI models to be accurate, they need a lot of data fed into them. Storing this data on-site can be difficult, so many companies tap into the storage space that Azure can provide. Second, you need a lot of computing power to develop AI models. Many clients won't have use for a full-time AI-devoted computer, so they'll rent out computing space in Azure to create the models.
Cloud computing is estimated to be a $1.6 trillion market opportunity by 2030 (according to Grandview Research), and with Microsoft holding around a 22% market share, it's well positioned to capitalize on this trend. But that's just Azure.
Microsoft also has an AI co-pilot rolling out to its office products, a partnership with OpenAI, and its newly acquired Activision Blizzard gaming division. Looking forward, Microsoft seems to be in a much better place than Apple.
However, this outlook comes at a price, as Microsoft stock is significantly more expensive than Apple's.
MSFT PE Ratio data by YCharts
But with Microsoft's ambitions and recent execution, I'd say it has earned its premium.
So, will Microsoft overtake Apple as the world's largest company in 2024? I'd say yes. In fact, I wouldn't be surprised if it did it before 2023 is over. Microsoft also looks like a decent buy right now, and I'd take it over Apple every day of the week.
