- Fundamentally, both might share more similarities than differences.
- Apple could be better suited for disruptive innovation and more compelling valuations. Microsoft stands out for its balanced business model and the more predictable growth pattern ahead.
Figure 1: Apple vs. Microsoft: Which Tech Stock To Own In 2023?
Credits: Apple Explained
(Read more from the Apple Maven: Apple’s Next Big Thing: Analyst Report On CES 2023)
AAPL vs. MSFT: More Similarities Than Differences
Apple and Microsoft are two stocks that can appeal to many investors for some of the same reasons. For starters, both are giant tech companies whose market values of around $2 trillion rank #1 and #2 in the United States.
Historically, the companies have competed for some of the same customers. Microsoft is the creator of the Windows operating system, which has powered most personal computers for decades. Apple is the legendary maker of the Mac, a direct competitor to PCs.
Today, Apple’s and Microsoft’s business models are more diversified, including across different verticals — consumers, enterprises, and beyond. For Microsoft, personal computing has lost some relevance to cloud services. For Apple, mobile communication has become the key pillar.
Still, investors who hold both Apple stock and Microsoft stock are probably exposed to some of the same trends and forces that impact the tech sector at large.
Even the performance of both stocks over the past 12 months has been similar – see the chart below, provided by Stock Rover. Both names have outperformed the tech-rich Nasdaq index through 2022 but lagged the returns of the S&P 500 by about ten percentage points.
Looking for a buy-the-dip opportunity in the mega-cap tech space? Both Apple and Microsoft seem to check that box equally well.
Figure 2: AAPL and MSFT vs. S&P 500.
Stock Rover
How AAPL Can Be More Compelling Than MSFT
In my opinion, Apple stock can be a more compelling pick for reasons that range from long-term growth opportunities to valuation.
On the former, I have recently discussed how Apple seems well-positioned to enter two brand-new businesses that could reshape the company’s financial statements in the next five years and beyond: mixed reality and autonomous vehicles.
While driverless cars may not become a viable business for the Cupertino company until 2025 at best, it could be the initiative that adds the most to Apple’s top line. Electric vehicles, for example, are expected to grow 20%-plus per year and reach $1 trillion in market size by 2030.
On valuation, Apple stock currently trades at a current-year P/E of 21 times – $130 per share divided by 2023 EPS estimate of $6.20. By contrast, Microsoft stock trades at a richer 24 times. This could be a tie-breaking factor for investors who prefer more of a value play.
How MSFT Can Be More Compelling Than AAPL
When it comes to disruptive innovation that has the potential to reshape a company’s financial profile, I think that Microsoft’s opportunities pale in comparison to Apple’s. This is not to say, however, that Microsoft lacks in growth potential – quite the contrary.
According to Yahoo Finance, Microsoft is expected to see revenue rise 13% next year over 2023 levels. Apple’s comparable figure is less impressive, at only 6%.
Looking further out, data compiled by YCharts suggests that Microsoft’s EPS should increase by 14% per year through the next five years. Apple, on the other hand, should see its bottom line rise by a more modest 11% annually.
Microsoft’s fuel for growth will probably come from Azure and the company’s other cloud service initiatives. The business productivity segment (think Office and Dynamics 365) has also been performing quite well lately, and it will likely continue to do so in the future.
In the end, Microsoft’s prospects might not be as “sexy” or exciting as Apple’s. But maybe this is a good thing. “More of the same” is probably the best outlook for the Redmond-based company, and also a good reason to favor MSFT over AAPL in 2023.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Apple Maven)
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