How Apple and Microsoft Dwarf the Rest of the Market
November 24 2019 - 09:44AM
Dow Jones News
By Amrith Ramkumar
Apple Inc. and Microsoft Corp. helped lift the Dow industrials
above 28000 for the first time earlier this month, a milestone that
underscored how much the two largest U.S. companies influence major
stock indexes.
Boosted by optimism about a U.S.-China trade deal and sturdy
profit growth, the companies have helped buoy the broader
technology sector while they vie for the title of largest U.S.
firm. Apple shares have soared 66% this year, pushing it ahead of
Microsoft with a $1.16 trillion market value. Revenue growth in
Apple's services business and products outside the iPhone have
fueled fresh enthusiasm for the stock.
Even though it has fallen behind its rival in market cap,
Microsoft has still had a banner year, with shares rallying 47% to
give the software giant a market value of $1.14 trillion. Strength
in the company's cloud-computing segment have helped the Redmond,
Wash., company offset slower growth elsewhere.
With a combined market value of more than $2.3 trillion, Apple
and Microsoft now tower over much of the market and have surged
ahead of rivals like Google parent Alphabet Inc. and Amazon.com
Inc.
Here's a look at just how influential the pair has become:
With the S&P 500 energy sector trailing the broader market
as oil and gas prices stagnate, Apple and Microsoft together are
now twice as large as the entire energy group. The sector includes
stalwarts such as Exxon Mobil Corp. and Chevron Corp. but is down
more than 9% in the past year, with investors expecting steady
production from the U.S. and elsewhere to curb gains in oil and
natural gas.
The tech duo has also eclipsed the combined market size of all
the companies in the Russell 2000. The gauge of
small-capitalization companies has risen 18% this year, compared
with a 24% rise for the S&P 500. The Russell slid alongside
banks and shares of other economically-sensitive companies earlier
in the year, though so-called cyclical areas of the market have
rebounded recently.
Together, Apple and Microsoft are also larger than the 197
smallest companies combined in the S&P 500, according to Dow
Jones Market Data. They have also eclipsed the index's consumer
staples, materials, real estate and utilities sectors.
Apple has benefited from consistent revenue gains in North and
South America, reflecting a broader trend of sturdy domestic
consumer spending boosting stocks even as economic activity
elsewhere stagnates. Sales in Apple's Americas segment have risen
in three consecutive fiscal years through September 2019, helping
offset declines in the most recent year in Europe, and the
company's Greater China segment of China, Hong Kong and Taiwan.
As Apple has relied on strength in its services segment and
products outside the iPhone to offset a drop in sales from its
flagship product, Microsoft's cloud-computing group has pushed the
stock higher. The segment includes its Azure product line, and the
group's revenue nearly doubled from the 2014 fiscal year through
the 2019 fiscal year ended in June.
The two largest technology stocks have recently outpaced rivals
including Amazon.com and Alphabet, which have lagged behind amid
concerns about rising costs and stricter regulations. Amazon shares
are up 16% this year, while Alphabet has rallied 24%, putting the
pair about $250 billion or more behind Apple and Microsoft in
market value.
Despite worries the two tech stalwarts have rallied too far,
they are still less expensive than peers such as Amazon based on
profits in the past year. Apple is also cheaper than the broader
technology sector.
Shares of both Apple and Microsoft are now on track for their
best annual performance since 2009. Microsoft is on pace for an
eighth consecutive annual rise, bucking declines for the S&P
500 in 2015 and 2018.
--
Kenny Jimenez
contributed to this article.
Write to Amrith Ramkumar at amrith.ramkumar@wsj.com
(END) Dow Jones Newswires
November 24, 2019 09:29 ET (14:29 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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