Why it makes more sense to invest in Microsoft than Apple
Microsoft is very close to overtaking Apple as the most valuable company in the world.
Its stock has fallen much less than the FAANG stocks during the recent market swoon.
But Apple still brings in higher profits and revenue than Microsoft.
Microsoft (MSFT) is on the verge of overtaking Apple as the world’s most valuable company. The race for the top spot in terms of market cap has the two tech firms separated by about $5 billion — meaning Apple needs to lose just over a half percent of its total valuation to cede the title to Microsoft.
Read about Apple’s path to the $1 trillion milestone.
Microsoft Building Slowly But Steadily
In today’s tech-obsessed markets, the idea that Apple — which famously became the world’s first $1 trillion company earlier this year — might be challenged for supremacy, let alone challenged by a company that’s not Amazon or Google, seems curious. However, there are a few things to keep in mind.
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MSFT Is Faring Better Than FAANG Stocks
The first is that Apple is no longer in possession of that coveted fourth comma. The recent market swoon has knocked its valuation down to about $850 billion. And although that swoon knocked a big chunk off of the market cap for each of the FAANG stocks — since Oct. 1, Facebook (FB) is down 17 percent, Apple (AAPL) 20.3 percent, Amazon (AMZN) 17.4 percent, Netflix (NFLX) 26.4 percent and Alphabet (GOOGL) 10.4 percent — Microsoft’s losses have been considerably lower at about 4 percent.
Microsoft Is Valuable to Corporate Clients
The other important factor to keep in mind is that while Microsoft might not be on the radar of as many consumers, its value in providing tech and computing services to corporate clients is considerable. From competing with Amazon to provide cloud-computing services to a variety of other technologies and tech services, Microsoft has built a steady business around its core products that — although without the sizzle that other major tech stocks come with — is built on a firm foundation.
That could be part of why the recent market downturn largely spared the tech giant. Whereas other tech firms are built on leverage their explosive growth into huge stock prices, Microsoft has been building at a measured, sustainable place.
Or, as Bloomberg writer Shira Ovide puts it: “Microsoft is the tortoise in a technology world obsessed with hares.”
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Are Investors Overlooking Apple?
That leaves the compelling question of whether or not investors are right to see Microsoft as being the better investment than Apple — though it might spark flashbacks to the 1990s for some.
There’s no way of knowing for sure; both stocks have compelling reasons to invest. Microsoft can boast the slightly larger dividend yield, and Apple has recently been hit by concerns about the health of its iPhone sales.
However, value investors might view all of this as missing the forest for the trees. After all, Apple continues to make more money than Microsoft — a lot more. Apple’s FY 2018 revenue figure is more than double that of Microsoft — $265.6 billion to Microsoft’s $110.4 billion — and its net income is nearly four times larger. With market caps that are so close, that translates to much better value numbers for Apple in a PE ratio of 15.08 to Microsoft’s 45.44. That’s in addition to Apple boasting much better profit margins and return on equity.
So, only time will tell which makes the better investment, but there are reasons that it could be an overstep to bunch in Apple with other overvalued tech giants.
Click through to find out what $1,000 in stocks invested 10 years ago would be worth today.
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This article originally appeared on GOBankingRates.com: Why It Makes More Sense to Invest in Microsoft Than Apple