Why Not All Earnings Are Equal; Microsoft Has the Wal-Mart Disease
For the first time in 20 years, Apple's quarterly profit exceeded Microsoft. Thus, on the face of things, the companies should be roughly equally valued. But they aren't. This week Microsoft's market capitalization is about $215B …
Context & Ripple Effects
The crossover has been building for two years: Silicon Alley Insider argued back in August 2009 that Apple had become the new Microsoft, and by October 2010 Apple had pulled ahead in revenue too, topping Microsoft's quarterly sales by over $4 billion (the revenue crossover). This week marks the third leg of the arc — quarterly profit, where Apple led Microsoft for the first time in 20 years.
What makes this piece matter is the puzzle it names: with earnings now comparable, the market still values Microsoft at roughly $215B — far below Apple — which the analyst attributes to the 'Wal-Mart Disease,' huge absolute earnings generated by a business the market expects to keep growing.
First-order effects
- Apple now leads Microsoft on every headline financial metric — revenue and, as of this quarter, profit — while holding a far larger market capitalization, handing it the investor-premium position in any comparison.
- Microsoft's ~$215B valuation despite peer-level earnings makes its discount explicit: the market is pricing its Windows/Office profit pool as mature rather than growing.
Second-order effects
- The gap raises pressure on Microsoft to demonstrate growth engines outside the PC franchise — mobile, search, cloud — because buybacks and dividends alone won't close a multiple that assumes stagnation.
- Apple's premium gives it cheaper currency and more investor patience for big bets, reinforcing a competitive asymmetry that compounds each quarter the profit lead holds.
Third-order effects
- If the pattern holds, large-cap tech splits into two valuation regimes: growth-trajectory companies earning premium multiples regardless of asset intensity, and high-volume license businesses permanently marked down — a structural incentive pushing incumbents like Microsoft toward platform reinvention.
- The episode cements the idea, seeded by the 2009 'new Microsoft' framing, that category labels matter less than perceived growth runway when the market assigns value to earnings.
The trend: Public-market tech valuations are decoupling from current earnings and re-anchoring to perceived growth trajectory, splitting the industry into premium-multiple growers and discounted cash cows.