End of an era
The stock markets are a bet on the future, not the present. Analysts, traders, fund-managers, etc all earn obscene amounts of money trying to predict whether stocks, bonds and commodities will go up in value and purchase/advise accordingly.
As has been extensively documented on this site, Apple is setting the pace as the technology industry moves into the mobile Internet era, while Microsoft is struggling to diversify away from its reliance on the traditional PC market. If you want a perfect illustration of where the market thinks things are headed, the news that Apple's market cap overtook Microsoft's yesterday is it.
If you wanted to buy all of Apple's shares right now, it will cost you $222 billion, whereas Microsoft's would set you back a mere $219 billion. It was only back in March that we wrote about Apple breaking the $200 billion market cap. At the time, Microsoft's market cap was $256 billion, so this symbolic moment owes as much to Microsoft's decline as Apple's rise.
For further symbolism, look at what the two companies are currently doing in the tablet space. Apple can't seem to make enough iPads to keep up with demand, while Microsoft boss Steve Ballmer has felt forced to get rid of the people running its devices arm and personal contol of it in a bid to get things back on track.
Note the P/E (price to earnings) ratio in the Google Finance screen shots below. This represents the ratio between the price of the shares and the annual profit per share - in other words: how many years of profit at the current rate it would take you to recoup your initial outlay.
Companies typically trade at a P/E of around 15. Deviation above this number indicates perceived higher earnings growth potential, and below the opposite. Yesterday, Apple's P/E was 20.72, while Microsoft's was 12.93. Nuff said.
