In a surprising turn of events, Microsoft briefly overtook Apple as the world's most valuable company. The shift occurred after Apple experienced its worst start in years, leading to growing concerns about demand for its products. Microsoft's stock rose by 1.5% in early trading hours on Thursday, giving the company a market capitalization of $2.88 trillion. This surge can be attributed to the company's early lead in the generative artificial intelligence race, particularly its $1 billion investment in OpenAI, the maker of ChatGPT, in 2019. Microsoft recently doubled down on its bet on OpenAI, committing an additional $10 billion as part of a “multiyear” agreement.

Meanwhile, Apple's market cap dipped to $2.86 trillion, down from its peak valuation of $3.081 trillion on December 14, 2023. However, by the time the market closed on Thursday, Apple regained its slight edge over Microsoft, with a difference of $20 million in market cap. Apple ended the year with an annual gain of 48%, lower than Microsoft's 57% rise. Microsoft has briefly taken the lead over Apple a few times since 2018, most notably in 2021 when concerns about COVID-driven supply chain shortages affected Apple's stock price.

Currently, Wall Street is more positive on Microsoft, with no “sell” ratings and nearly 90% of brokerages recommending buying the stock. In contrast, Apple has two “sell” ratings, and only two-thirds of analysts covering the company rate it as a "buy." Both companies are considered relatively expensive in terms of their price-to-earnings ratio, with Apple trading at a forward PE of 28 and Microsoft trading at around 31 times forward earnings.

The recent shift in market value reflects Microsoft's continued push into generative AI, which has been driving up its stock price. On Thursday, Microsoft's stock jumped as much as 2%, reaching a market valuation of $2.903 trillion, while Apple's market cap dropped to $2.871 trillion after a 0.9% decline. This marked the first time since 2021 that Apple's value fell below that of Microsoft. However, by Thursday afternoon, Apple had regained its title, with Microsoft's valuation falling to $2.849 trillion.

The surge in Microsoft's shares came shortly after the company reported better-than-expected revenue growth of 7% to $52.9 billion in the third quarter. This growth was largely attributed to Microsoft's integration of AI technology into its cloud computing business. The company has been ramping up its AI initiatives, starting with a $10 billion investment in OpenAI in 2023, which aims to revolutionize the AI landscape with ChatGPT.

Apple, on the other hand, has faced concerns over demand for its iPhone sales, particularly in the crucial Chinese market. While Apple was the first U.S. company to reach a market value of $3 trillion in 2022, slumping iPhone sales have caused its stock price to fall below that milestone threshold. Unlike Microsoft, Apple has not benefited from the AI-fueled stock surges seen by other big tech companies such as Google, Amazon, and Meta. These companies have announced plans to develop their own AI-powered chatbots or integrate AI technology into their products or operations.

The battle for the title of the world's most valuable company between Apple and Microsoft is not new. Throughout the COVID-19 pandemic, Microsoft held the top spot as the remote working boom increased demand for its software, while Apple faced supply chain difficulties and COVID-related restrictions at its factories in China. However, Apple's dominance since 2010, fueled by the success of the iPhone, has made it a formidable competitor for Microsoft.

The AI boom has undoubtedly played a significant role in boosting company valuations, including that of Microsoft. Earlier this year, Nvidia, a company specializing in computer chips for AI, became the first chipmaker to be worth $1 trillion. As the AI race continues to unfold, it remains to be seen how Apple and Microsoft will navigate the evolving landscape and maintain their positions as industry leaders.