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A New Entry In The Two Trillion Dollar Club

A New Entry In The Two Trillion Dollar Club

The decades-long relationship between Microsoft Inc. (NASDAQ:MSFT) and Apple Inc. (NASDAQ:AAPL) has helped shape the evolution of personal computing. The on-again, off-again relationship between the two tech giants began in earnest at the dawn of the PC era in the late 1970s, and has panned out into the companies cozying up to one another in a new endgame: enterprise.

So, it’s only fitting that where one company goes, the other follows.

On Tuesday, Microsoft joined Apple in the exclusive $2T market cap club as investors continue to bet on long-term growth driven by cloud and enterprise software. The two are the only American companies to have ever attained such a valuation, though they will be looking over their shoulders as Amazon Inc. (NASDAQ:AMZN) with a market cap of $1.8T and Alphabet Inc. (NASDAQ:GOOG) with a valuation of $1.7T close in.

A fun tidbit: It took Microsoft three decades from its IPO to reach its first $1T valuation, but only two years to reach the next trillion.

Steep climb

MSFT was valued at $2.00T on Friday trading, good for a 19.9% climb in the year-to-date and 34.8% over the past 52 weeks. In comparison, Apple is valued at $2.23T, having notched a $2 trillion valuation for the first time last August.

Microsoft’s latest valuation represents a steep climb from the lows it  notched during the pandemic.

Microsoft’s market value plunged to a 2020 low of $1.03 trillion in the early days of the COVID-19 crisis, but the shares have rallied more than 96% from their closing low on March 16, 2020.

Like many of its tech peers, Microsoft has largely benefited during the pandemic with the company’s Azure cloud-computing platform as well as tools like Microsoft Office and Microsoft Teams recording robust demand and growth. Microsoft’s personal-computer business has been posting strong results amid growing need for devices that can support remote work and schooling. The company has been seeing heavy demand for its computer enterprise software (Windows), gaming systems (Xbox) and its cloud computing platform (Azure). 

On Thursday, Microsoft released Windows 11, marking the first Windows OS update in almost six years. Windows 11 will feature an app store in collaboration with Amazon.com. Microsoft has also deepened its partnership with PC hardware giant Intel (NASDAQ:INTC) with the New Windows 11 experiences including Intel Bridge Technology to expand the number of apps that can run on the PC; Thunderbolt 4 ports pairing with the new Windows Snap multitasking feature for multi-monitor experiences and Intel Wi-Fi 6E. More than three-quarters of Windows PCs are powered by Intel processors.

Also significant: Microsoft is one of a handful of Big Tech giants to have so far avoided the latest wave of antitrust scrutiny from American regulators--maybe because it already had its day of reckoning against antitrust regulators two decades prior. That gives the company more liberty to expand its products--and peace of mind for long-term investors.

Logan Purk of financial advisory Edward Jones says Microsoft’s $2T valuation "is warranted, given how it has pivoted toward the cloud, and it remains attractively valued even given the strong performance. Microsoft checks all the boxes: it is in the markets that investors favor, it offers strong and sustainable growth, and it remains very well-positioned to capitalize on the long-term secular trends we see in technology."  

Wall Street remains upbeat about Microsoft’s prospects, with 33 of the 36 covering analysts tracked by FactSet holding buy-equivalent ratings on the shares with an average price target of $294.73, which implies ~11% upside.

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