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Microsoft tops market cap
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September 15, 1998: 4:19 p.m. ET
Company passes GE in value, signals dominance of technology in future
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NEW YORK (CNNfn) - After being slammed by the Justice Department and its rivals over the past few months, Microsoft Corp. got a bit of good news Monday when it became the most valuable public company, passing General Electric Co.
While the software giant downplayed the changing of the guard, analysts say it shows not only how vital technology is to our economy today, but also serves as a testament to its increasing role in the future.
Microsoft (MSFT) shares closed up 1-3/4 to 106 Monday, giving the 23-year-old company a market capitalization of $261.1 billion. That puts it just over the top of General Electric (GE), which closed Monday down 1/8 at 79-1/8, putting its total value at $257.3 billion.
The market capitalization is computed by multiplying a company's current share price by the number of shares outstanding. Microsoft has about 2.464 billion common shares outstanding and GE has about 3.253 billion, according to SEC filings.
Technology's role is increasing
Analysts say the rise serves as proof that technology's importance to the U.S. economy will only continue to rise.
"I think the real significance is that the technology revolution is for real and is moving faster than anyone thought. We all talk about how our lives are changing and how technology will drive the markets -- this is proof," said Bob Froelich, chief investment strategist at Scudder Kemper Investments.
Stuart Bockler, president of International Market Call, agreed. He said the distinction is proof the computer industry is moving to maturity.
"As the Internet is opening up widely and people are using computers more and more for communication, we are going to see many small companies building on the backbone of the Internet and exchanging data and information. Those will be the new companies that wind up to be the top Dow and Nasdaq companies," he said.
Bockler said Microsoft, which was founded in 1975 -- many decades after GE came to be in 1892 -- has achieved success so quickly because the company's founders realized the importance technology would play.
"Microsoft has gotten themselves intertwined directly into the majority of computers sold today. As we move into the year 2000, much more of the commerce and communication in the world will occur through computers and the Internet," he said.
Move comes at a bad time?
Froelich said the move is particularly significant since technology stocks have been so volatile of late. However, over the short term, he believes the distinction might actually be bad for Microsoft.
"I don't think there could be a worse thing to happen as they are fighting an antitrust suit than to be the largest company in the United States. It's a great statement about what's going on, but no one will lend you sympathy. You always go after the leader," he said.
Microsoft downplayed the event, saying the company puts more emphasis on managing and improving its core business.
"While building shareholder value is important, we don't find market capitalization a particularly critical measurement. We measure our value by the value our products provide to customers," said company spokesman Tom Pilla.
Still, the news is good for Microsoft Chairman Bill Gates, whose Microsoft stock currently is worth more than $58 billion.
Volatility to be expected
Even though many people feel technology companies will be the big caps of the future, they also are susceptible to wide market swings as many struggle to put up the results investors expect.
Both Froelich and Bockler say the volatility is to be expected, given the young age of the industry and the fact that technology companies haven't yet attracted the same interest worldwide as traditional industrials.
"Market volatility is based on expectations and high levels of growth will drive that very quickly. Where Macy's has invested in malls of cement and steel, Yahoo! just paid $49 million (with its purchase of Viaweb) to put up electronic infrastructure because they have command of the audience and can drive users to the area," Bockler said.
"I think part of the volatility we're having in (technology stocks) has to do with the foreign flow of money we have into our equity markets.
"We had 66 billion foreign investors in U.S. markets last year and very little of that support has gone to technology stocks. As we get international investors, that will help it. I think technology will be a market leader on the way up. When you're a leader on the way up, you will also be the leader on the way down," Froelich said.
Just as Microsoft hasn't been around for the vast majority of GE's history, analysts agree the company that unseats Microsoft may very well be another upstart.
"I think it's in all likelihood that it could be something that's on the Internet today that we know nothing about or something being planned in a garage. The barriers of entry in technology are so few. Quite frankly, I think that entrepreneurial spirit almost guarantees (a young company) will be the next market cap leader," Froelich said. 
--by staff writer Cyrus Afzali
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