Microsoft could become biggest company, but don’t count Apple out 

Source: S&P Dow Jones Indices

Microsoft’s recovery has been slow and steady. “If you look back over the last four years, it’s hard to sneeze at how well it’s done. Ever since [CEO Satya] Nadella came in and changed the focus,” said Paul Hickey, co-founder of Bespoke. “It was able to reinvent itself and successfully.”

Apple was worth $826.8 billion Tuesday afternoon, while Microsoft was at $822.4 billion. Apple has been crushed recently by worries about iPhone sales and the tech selloff, just months after it surpassed the $1 trillion mark.

Ironically, when Microsoft was on top in December 1999, it was worth $604 billion, while Apple was a slender $16.5 billion, according to S&P Dow Jones Indices data. Microsoft was number one again in 2002, after the tech bubble burst but with a much smaller market value of $276.4 billion.

Hickey said Microsoft isn’t getting the credit it deserves. “We’ve seen companies like IBM And GE that haven’t been able to withstand changes in the overall business environment,” he siad. “Microsoft is working on the whole subscription business…and it’s really getting in front of trends.”

Apple has been the biggest company by market cap, since 2012, based on year-end data from S&P Dow Jones Indices.

Even if Microsoft surpasses Apple, the software company does not have the market sway of Apple, which has impacted sentiment and trades with the momentum names in tech. Apple has fallen 22.8 percent since Oct. 1, and Microsoft is down just 6.3 percent in the same time frame.

“Microsoft has just been slowly going on in the background there, and almost under peoples’ radar. It’s down but it’s held up better than the market. It didn’t get caught up in all the excitement we saw in a lot of other stocks,” said Hickey. “You look at both of them. They have identical dividend yields right now, 1.7 percent.”

Hickey said it’s really not unusual for a stock to fall out of favor, and now it’s Apple’s turn, something that it has experienced before.

“Maybe the only company that’s reinvented itself better than Microsoft is Apple but that was 15 years ago…They’ve constantly been rivals to each other with each taking turns in the lead,” said Hickey.

Apple’s stock is now well below the average Wall Street target of $232, at $174.24, while Microsoft, at about $107.14 at Tuesday’s close, was just about $20 below the average analyst’s target.

“Microsoft was an example of a company that was a monopoly and became too powerful. I think under this new leadership they figured it out. Whether they deserve to be larger than Apple, I don’t know,” said Jack Ablin, CIO at Cresset Wealth Advisors. “One of the things about Microsoft, I don’t think their customers are passionate about them. Their business and their brand is a serviceable utility, but as for Apple, people go out of their way to align themselves with Apple and that brand. That’s impressive.”

Still, the market has been rewarding Microsoft and Ablin said in reinventing itself Microsoft has finessed a recurring revenue model. “Apple, for as great as it is, draws most of its revenue from one-time sales,” he said.

There are just a small group of 11 companies that have been number one, going back to 1925. AT&T, as the former Ma bell, held that title for 59 years, while IBM was at the top for 21, according to S&P Dow Jones data. Exxon was the biggest company for several years in the mid-2000s.