In the trading session on January 24, US stocks overall continued their upward momentum, buoyed by optimistic traders reacting to a new set of data surpassing estimates and robust earnings reports from technology companies.
The S&P 500 pushed higher, and the Nasdaq 100 experienced a significant increase of over 1 percent. Notably, Netflix Inc.’s shares soared as subscriber numbers exceeded expectations. Meta Platforms Inc. achieved a milestone, reaching a market value of $1 trillion for the first time since 2021.
Also Read | Meta piloting gen AI tools for advertisers
So, despite the industry-wide layoffs and low economic mood, what gives? We take a look.
Microsoft Hits Historic $3 Trillion Market Valuation, Battles with Apple for Top Spot
Software giant Microsoft Corporation achieved a historic market valuation of $3 trillion briefly on January 24, showcasing the profound impact of optimism surrounding artificial intelligence (AI) on its remarkable growth, Bloomberg reported.
The company’s stock experienced a 1.7 percent surge, reaching $405.63, pushing its market capitalisation just above $3 trillion during market hours. However, it closed with a 0.9 percent increase, settling at a record high but with a valuation of $2.99 trillion.
While brief, touching the $3 trillion threshold has solidified Microsoft’s position as one of the largest public stocks. It briefly surpassed Apple Inc., which achieved the $3 trillion milestone last year, only to slip back below Apple’s market valuation. Apple concluded with a market valuation of $3.01 trillion.
Also Read | Microsoft launches consumer version of Copilot AI assistant. Details here
Throughout the year, Microsoft and Apple shares have been in contention for the top spot as the most capitalised stock on Wall Street.
AI, the Bearer of Good Times for Big Tech
According to Neil Dutta of Renaissance Macro, the latest US data indicating a substantial expansion in business activity for January, the most in seven months, is viewed positively for the stock market. Dutta told Bloomberg, “Growth is up and inflation is down,” creating a favourable scenario for equity markets.
The demand for AI services, coupled with cloud computing support, is anticipated to contribute to Microsoft’s long-term growth. Revenue is projected to rise by 15 percent in its 2024 fiscal year, outpacing the overall tech sector, according to data from Bloomberg Intelligence.
Also Read | Generative AI Boom Can’t Happen Without ASML, CEO Wennink Says
Fueled by optimism in AI, Microsoft’s shares surged by almost 57 percent in 2023 and continue to rise, up by 7 percent this year, Reuters reported. In comparison, Apple’s stock rose by 48 percent in the previous year and has seen a modest 1 percent increase year-to-date, it added.
Microsoft’s strategic investment in OpenAI, the creator of ChatGPT, positions it as a frontrunner in the race for market dominance in generative artificial intelligence (AI), as per a Reuters report. This competition includes tech giants such as Google’s owner Alphabet, Amazon.com, Oracle, and Meta Platforms, the owner of Facebook.
Leveraging OpenAI‘s technology, Microsoft introduced updated versions of its flagship productivity software and enhanced its Bing search engine. These advancements are aimed at improving competitiveness with Google’s dominant search offering.
On the other hand, Apple confronts challenges, particularly in China, where demand for iPhones is slowing. In response, the company is offering rare discounts to boost sales amidst strong competition from local rivals such as Huawei Technologies.
Also Read | Indian tech vendors can take heart from Moody’s AI crystal ball
What do Investors and Analysts Say?
Microsoft is set to report its second-quarter results later this month. The company’s stellar performance has positioned it as one of the most popular stocks on Wall Street, with over 90 percent of analysts tracked by Bloomberg recommending buying shares. The average analyst price target suggests a potential upside of about 7 percent from current levels.
Investors too are enthusiastic about AI and its potential to accelerate earnings and revenue growth. Microsoft, in partnership with OpenAI Inc., is viewed as a major beneficiary of AI, offering AI-supported services to customers
Ted Mortonson, technology desk sector strategist at Baird told Bloomberg that Microsoft holds a “tremendous number of cards in its offering” given to its push towards generative AI. “To see a company of this size with this kind of growth is pretty amazing, and I think that so long as we continue to see this kind of growth, the stock will continue to rip,” Mortonson said.
Also Read | Gmail’s new AI-backed feature will allow you to draft an email using just your voice. Here’s how it works
“We understand that companies like Apple and Google and Meta are working on ways to monetise generative AI, but you have to admit that Microsoft right now is the only working model where you can engage with chatGPT for a subscription,” Brian Mulberry, client portfolio manager at Zacks Investment Management told Bloomberg.
Analyst Brad Reback from Stifel told Reuters that in this battle, he attributes Microsoft’s success to “AI optimism.” He notes that Apple lacks a “clear AI story” and faces concerns about iPhone sales growth rates and market penetration.
Possible legal spanner in the works?
Following an extensive investigation, the United States Justice Department is gearing up to file a lawsuit against Apple, accusing the tech giant of potentially violating antitrust laws. The department alleges that Apple employs hardware and software limitations, creating obstacles for rival companies to compete with its iPhones and iPads.
If the lawsuit proceeds, Apple will join the ranks of the “big four” tech companies – Amazon, Meta, Google, and Apple – all of which have faced legal action by the US federal government in the past five years for engaging in monopolistic business practices.
Also Read | Google Chrome aims to make browsing the web ‘easier and safer’ with 3 new AI generative features
Google has been fined by the European Union for various antitrust breaches, while the US Justice Department has also filed an antitrust lawsuit against Google. Meta and Amazon are also under scrutiny, with ongoing lawsuits accusing them of eliminating competition through acquisitions.
With the digital market expanding, various countries, including the European Union, Japan, the United Kingdom, the US, China, South Korea, India, and Australia, have introduced or plan to introduce competition legislation aimed specifically at regulating tech firms.
The Australian federal government has been actively investigating global tech giants since 2021. The ACCC news media bargaining code is one such legislative measure requiring digital platforms to compensate Australian news publishers. Despite advancements, concerns remain about gaps in Australia’s privacy and consumer laws, leaving consumers with fewer protections online compared to other countries.
Governments’ efforts to hold tech giants accountable could reshape the tech market, fostering more equitable competition and ethical business practices. Antitrust laws play a crucial role in ensuring fair competition among businesses, and successful legal actions may redefine the landscape of the tech industry.
It is yet to be seen how or if any of the proceedings would apply to the AI side business of things.
(With inputs from Bloomberg, Reuters, and The Conversation)
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it’s all here, just a click away! Login Now!
Download The Mint News App to get Daily Market Updates & Live Business News.
Published: 25 Jan 2024, 11:46 AM IST