Short Sellers Raise Bets Against Apple, Back Off on Microsoft

The prior short interest report was released following quarterly earnings reports from Apple Inc. (NASDAQ: AAPL) and Microsoft Corp. (NASDAQ: MSFT). Both tech giants got a small share price bump from their earnings reports, but over the course of the two-week short interest reporting period that ended May 14, both companies saw share prices slip, just as they had in the prior reporting period that ended April 30.

Short sellers added more than 12 million shares of Apple stock to their holdings in the two weeks between April 30 and May 14, a surge of 15% in short interest. Some 94.8 million shares were shorted on May 14, about 0.6% of the stock’s total float. Apple’s share price declined by nearly 3% during the two-week period.

Short interest in Microsoft fell by 13% in the latest two-week reporting period. About 40.5 million shares were short, representing 0.55% of Microsoft’s total float. Microsoft’s share price dipped by 1.6% during the period.

As of Tuesday night’s closing bell, Microsoft stock has added 13.7% to its share price since the beginning of 2021. Apple shares have dropped by just over 4% in the same period.

Since April 27, when Microsoft released quarterly earnings (Apple dropped its report the next day), Microsoft stock had fallen by about 3.7% and Apple stock has retreated 5.4%. Based on Tuesday’s closing stock prices, Microsoft’s forward price-to-earnings (P/E) ratio is about 32.4, while Apple’s is about 24.6. Both trail well behind Fidelity’s tech sector P/E estimate of 34.7 for the year.

Both Apple (market cap of $2.1 trillion) and Microsoft (market cap of $1.9 trillion) need to make nearly gargantuan numbers in order to move the share-price needle at all. There are limits to what they can do to put such numbers on the board, and right now, Microsoft may have the upper hand.

Apple, Alphabet and Facebook face increasing scrutiny from governments in the United States, Europe and even China regarding potential antitrust and anticompetitive violations. In legal proceedings that began in 1990 and weren’t resolved until 2001, Microsoft was found guilty in federal district court of violating the Sherman Antitrust Act of 1890 by bundling its Internet Explorer web browser with the Windows operating system.

The initial judgment would have broken Microsoft into two companies, but the final settlement, in 2004, fell far short of that. Microsoft was left intact and the rest, as they say, is history.

Having the U.S. government breathing down Apple’s neck would be bad enough. Add the European Union, which wants more protection of privacy rights and competition, and China, which wants less of the former and more of the latter from its own companies, and Apple’s exposure to bad news over the next year or so is considerably greater than Microsoft’s.

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