Microsoft has reclaimed its position as the world’s most valuable company, surpassing Apple in market capitalization. 

According to Reuters, the shift occurred as Microsoft’s shares rose by 1.6%, reaching a market valuation of $2.875 trillion, driven by its early advancements in generative artificial intelligence. 

Meanwhile, Apple experienced a 0.9% decline, resulting in a market capitalization of $2.871 trillion – the first time since 2021 that Apple’s valuation fell below that of Microsoft.

Analysts attribute Microsoft’s success to its rapid growth in the generative AI sector, positioning it favorably against Apple. D.A. Davidson analyst Gil Luria noted, “It was inevitable that Microsoft would overtake Apple since Microsoft is growing faster and has more to benefit from the generative AI revolution.”

Apple’s struggles are evident in a 3.3% decline in its stock during January, contrasting with Microsoft’s 1.8% rise over the same period. 

Concerns over weak demand for the iPhone, exacerbated by rating downgrades, have contributed to Apple’s recent stock performance. Challenges in the Chinese market, competition from Huawei, and Sino-U.S. tensions have heightened pressure on Apple, impacting its sales.

Additionally, regulatory scrutiny of Apple’s lucrative deal that designates Google as the default search engine on iOS poses a threat to its services business. Despite ending last year with a 48% gain, Apple faces headwinds as it navigates through these challenges.

This shift in leadership echoes previous instances when Microsoft briefly surpassed Apple in market capitalization, notably in 2021 amid concerns about COVID-driven supply chain shortages affecting Apple’s stock price.

Wall Street currently exhibits a more positive outlook on Microsoft, with no “sell” ratings and approximately 90% of brokerages recommending the purchase of Microsoft stock. In contrast, Apple faces two “sell” ratings, with only two-thirds of analysts advising a “buy.”

Both companies, however, grapple with relatively high price-to-earnings ratios compared to their historical averages. 

Apple’s forward PE of 28 exceeds its 10-year average of 19, while Microsoft’s forward PE of around 31 surpasses its 10-year average of 24, according to LSEG data.