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Microsoft and Apple: Market Aggregation and the Fight for Title of “Most Valuable Company”

On Tuesday it was reported by Refinitiv, a global provider of financial markets data and infrastructure, that Microsoft had briefly overtook Apple to become the world’s most valuable company. As reported by Seth Fiegerman in his article “Microsoft and Apple are fighting to be world’s most valuable company” on November 27, 2018, this has been part of a larger competition for the title of most valuable company since 2010, when Apple first passed Microsoft in market cap, when Apple’s consumer hardware business was thriving and Microsoft was flopping. However, with the new changes made under CEO Satya Nadella, Microsoft has been pioneering the space of cloud computing versus Amazon and has seen its first-ever $100 billion sales year. Meanwhile a depression in Apple demand for an increasingly-more expensive line-up of iPhones and other devices has weakened consumer confidence. Microsoft’s success can be attributed to its exit from the “flat-lining” market for smartphones or the social media purge that has effected other companies such as Facebook and Google over privacy concerns, and has pivoted to a more enterprise-focused direction with its position in the “Cloud space”, according to Dan Morgan, a senior portfolio manager at Synovus Trust. These factors combined with its lack of regulatory issues (due to issues 20 years prior with the United States for its anticompetitive behavior) have all played its part in creating the success Microsoft now sees.

 

The publicly traded stock market can serve as an information aggregation, which can serve to predict the success of the companies that are traded amongst stock-owners. In this prediction model, the valuations of Apple and Microsoft correspond to the likelihood of future success as measured by an increase in valuation, and vice versa. The players of the game are the stock owners, and their decision to choose which company (or both) and how much they want to bid on the success of these two companies. This decision is based on their personal probability as determined by research into the factors that effect the companies internally and externally. Microsoft’s recent rise in valuation can be seen to correlate to people believing that Microsoft will have a higher success that previously. Given the software space that Apple and Microsoft both compete in, it is logical to deduce that the decline in success of one company would leave to an increase valuation in the other. However, this model does have its limitations as its existence can create an information cascade where an upward trend of a company can incite an inflationary peak of the stock as others insinuate this upward trend to be a reason to invest and an even quicker fall during downward trends (think Bitcoin).

 

Article: “Microsoft and Apple are fighting to be world’s most valuable company”

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