Goldman Says Buy Microsoft Stock After Apple Overtakes Rival in Market Cap

Microsoft Corp. fell too far in a selloff that pushed the software maker’s market value below Apple Inc., according to Goldman Sachs Group Inc.

Microsoft, based in Redmond, Washington, slumped 18 percent in May through yesterday, when Apple of Cupertino, California, was worth $2.94 billion more. Microsoft lost 4.1 percent yesterday after Chief Executive Officer Steve Ballmer said that the effects of the European debt crisis will spread.

“While European contagion is a concern, Ballmer’s comments were not Microsoft specific,” Sarah Friar, an analyst at New York-based Goldman Sachs, wrote in a report to clients dated yesterday. “The shares underperformed large-cap tech despite having relatively lower exposure outside of the U.S. Given significant underperformance and attractive valuation levels, we are buyers of the shares.”

Technology companies in the Standard & Poor’s 500 Index had retreated 11 percent this month through yesterday. Today, Microsoft jumped 4 percent, the most since Oct. 23, to $26.

Goldman’s Friar said that Microsoft’s fourth-quarter earnings, scheduled for July 22, will show signs of improving corporate demand for personal computers. On average, analysts surveyed by Bloomberg estimate sales of $15.2 billion at the world’s largest software maker, compared with $13.1 billion a year earlier.

Missing Estimates

Microsoft reported third-quarter revenue last month that missed analysts’ most optimistic predictions. Sales rose 6.3 percent to $14.5 billion, compared with analysts’ estimates that were as high as $14.8 billion for the quarter.

While Microsoft’s Windows business has benefited from increased consumer demand for personal computers, corporations have avoided purchases of machines and long-term contracts. Investors held out for evidence of a spending resurgence after chipmaker Intel Corp. forecast record profit margins for 2010.

FBR Capital Markets Corp. today raised its rating for Microsoft to “outperform” from “market perform,” also citing the outlook for increased demand from corporations.

Microsoft’s stock market value exceeded $400 billion in 2000 before falling to $227.9 billion today. Apple’s worth has surged to $230.5 billion from less than $5 billion in 2003.

“The stock market will take care of itself,” Ballmer said in New Delhi today. “What’s the expression? On any given day the stock market is a voting machine, in the long run only is it a weighing machine. So let’s see what happens.”

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net.

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