Big changes are coming to tech stocks, as Microsoft has recently surpassed Apple as the largest company in the world at (as of this writing) 851 billion dollars in market cap versus 847 billion for Apple, but it could be that Apple’s troubles keep piling up while Microsoft has minimal geopolitical risk compared to other tech companies — and this strategy has paid off well for investors of Microsoft.
Both stocks have declined recently, especially the overall tech sector, due to several factors — most notably the trade war with China, and the market as a whole — but Apple has been more exposed to the turbulent trade disputes, along with signs that it may not want to share data on how many phones it has sold recently. This move by Apple was uncharacteristic of its open reporting on iPhone sales, and investors are worried that it may not want to share the data because the iPhone sales are not what investors expected, and could be a signal of trouble for the iPhone.
Apple is also in an anti-trust case in the US Supreme Court. Apple Inc vs Pepper, being heard in the US Supreme Court, accuses Apple of monopolistic behavior in its use of its App Store. If the Court determines that Apple acted as a monopoly with regards to developers and consumers it would be liable for millions of dollars in damages, along with having to change some of its business practices in regards to the app store that developers must use to pass on their mobile applications to consumers. The App Store is highly profitable for Apple with over 11 billion dollars in revenue for 2017, and is a major source of revenue for the company. If changes need to be made to accommodate the ruling, this could greatly affect a major revenue stream — as well as how it handles and distributes mobile apps.
Can Apple correct its problems?
The problems of Apple are not insurmountable, and the next few months may bring the company back in favor of investors should all three problems clear up. The main issues to deal with are the trade war, accusations of monopoly, and reporting accurate iPhone sales. If they can fix all three issues, most likely investors would reward the stock well enough to go past Microsoft in market cap.
The G20 Summit in Argentina is currently taking place, and President Trump is expected to meet with President Xi Jingping of China. If they can come to some agreement to either stop or reduce the ongoing trade war between the United States and China this would be great news for Apple as much of their manufacturing is located in China and they seem to be the most exposed to trade disagreements. The antitrust case against Apple will take months for the court to determine the outcome. If they would report their sales of the iPhone, it may help ease investors worried that sales are worse than they had anticipated
Microsoft’s strategy laid out in 2014 is paying off well for its investors
Microsoft has been a surprise leader in the tech sector recently by their surprising rise to the largest company, as measured by market capitalization. The last time they held this position was in 2002, when it then lost that title to General Electric the following year. Although they lost greatly in the home operating system market to Apple, they have in recent years caught up with the other leading tech companies with a turnaround led by their CEO Satya Nadella. After becoming CEO in 2014 he focused heavily on cloud computing, and it has paid off for investors — now being the main competitor of Amazon Web Services. Microsoft has several positions that could compete with any of the major tech companies, such as Facebook, Google, and Amazon. With its cloud services, it challenges Amazon; Bing to compete with Google; LinkedIn to get a foothold on the social media world — while not a direct challenge to Facebook, it could pose a long-term threat to the social media company. It has a solid base from which to launch promising new technologies such as cloud computing and that strategy has made great returns for investors, as it is once again the largest company in the world.
The ideas and views expressed in this article should not be used without assessing your own financial situation or consulting your financial adviser. Past results for stocks are no indication of future performance and this article should not be used in place of your financial adviser.