Over the last year as Apple’s (NASDAQ: AAPL) sales have grown and expectations for its new products have blossomed, the company’s market value has increased by more than double as its stock price  moved from $118 to almost $260. Along the way, its market cap has eclipsed  Walmart (NYSE: WMT), International Business Machines (NYSE: IBM), GE (NYSE: GE), Procter & Gamble (NYSE: PG) and Bank of America. (NYSE: BAC).

Now, Apple is very close to passing Microsoft to become the second most valuable company in America. Its current market cap is $235 billion to Microsoft’s $275 billion.  Some analysts have stock price targets of $300 for Apple. If the shares reach that level and Microsoft shares remain where they are at $31.50, a 52-week high, Apple will soon move ahead of Microsoft.

The notion that Apple should be worth more as a company than Microsoft is implausible at first analysis because Microsoft’s sales are close to $20 billion in strong quarters and its operating income near $8 billion. By contrast, in the quarter that Apple reported yesterday its revenue was just over $13.4 billion, a 48% increase, with operating income of about $4 billion, a 73% gain. Those sales and income figures are still well below Microsoft’s.

The difference between the two firms is that investors believe that while the sun never used to set on the Microsoft empire that it is no longer the case. Apple is a company in the middle of a remarkable growth spurt. And, Microsoft’s revenue in its last quarter rose only 14% to $16.6 billion. Operating income rose 41% to $8.5 billion. Analysts believe that these improvements will be short-lived because they were cause in large part to initial sales of Windows 7.

Apple also has the advantage of a product line that is doing well with sales strength for each of its major offerings. Mac sales were up 33% in the last quarter. iPhone sales more than doubled. And, sales of the iPod were flat, impressive given that the product has been available since 2001.

The perception of Microsoft is much different. Its Windows, Office, Business, and Servers & Tools margins are still high, often above 70%. But, the amount of competition that Microsoft faces has grown as more and more operating software is used on smartphones and desktop users have inexpensive alternatives like Google (NASDAQ: GOOG) Apps. Microsoft has failed to get any meaningful part of the smartphone OS industry. By contrast, the Apple OSX is on every iPhone. Apple has sold 50 million iPhones and the number is growing by eight million per quarter. Sales of the device in some large markets like India and China are just beginning.

Microsoft’s enterprise software businesses face increased competition from Oracle (NASDAQ: ORCL), SAP (NYSE: SAP), and salesforce.com (NYSE: CRM). Each is a large company in its own right. Oracle had revenue of $6.4 billion in its last quarter.

Microsoft’s diversification has also worked against it in the market. Its search and portal business loses hundreds of millions of dollars each year as Redmond tries to take search share from Google. Microsoft’s device business, which includes low margin products like the Zune and Xbox 360, does almost nothing to contribute to Microsoft’s earnings.

Microsoft, which has almost no competition two decades ago is new viewed as being beset by competition, and Apple is viewed as having no competition at all.

http://247wallst.com/2010/04/21/apple-prepared-to-pass-microsoft-as-second-most-valuable-us-company/

Who saw this coming? O_o

I'm surprised, I would have thought it was already there.

Shocking... but wait... so who's number 1? I would of thought Microsoft.

Is it Coca Cola?

Microsoft, though it tries again and again, just can't seem to break into new markets. They haven't conquered phones, consoles, music players, media centers, or search engines, and they don't seem to make much money on a product if they don't have monopoly control of a market.

If you look at this chart of MS profits, you can see that they're still making nearly all of their money from Office and Windows, with a decent slice of cash from servers, and nothing of note from anywhere else. The point is that all of Microsoft's big money makers are from old sectors that they seized control of in the 90s:

http://bit.ly/cnWlXq

Apple's biggest moneymaker is the iPhone, which didn't exist three years ago. Their third biggest is the iPod, which didn't exist ten years ago. Then comes the iTunes store, launched seven years ago. Over half of Apple's revenues come from projects which were launched in the past decade:

http://bit.ly/d0Bxtn

Next quarter you can add the iPad to the list of new Apple products that make lots of cash.

Microsoft is still making huge amounts of cash, it's just going nowhere fast, and investors are always more interested in the future than the present.

No wait... it's not Coke, Pepsi is actually worth more then Coke because of their diversifcation, similar situation. I wonder who 1 is...

Exxon.

Ah yeah, that makes sense.

I thought McDonalds was #1?

It makes sense, but I suspect that Apples price is more fragile than Microsofts. All it takes is Steve Jobs retirement for Apple to be worth half as much overnight.

um, microsoft still makes WAYYY more money than apple can ever dream of