Which Stock Is the Better Investment in 2024: Apple or Microsoft?
There are just five U.S. companies with a market capitalization of $1 trillion or more: Alphabet, Amazon, Apple, Microsoft and Nvidia. These five companies, along with Tesla and Meta, make up the group known as the Magnificent Seven. To give you a sense of their scale, the Magnificent Seven’s total market cap is larger than the entire Chinese stock market, and over four times the size of the total U.K. market.
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Apple (AAPL) and Microsoft (MSFT) are competitors, although perhaps not as directly as they once were — remember the ‘I’m a PC’ commercials? Investors that have held either, or both, stocks over the years have been richly rewarded. There’s no doubt that these two are among the most successful companies ever, but which one is the better investment in 2024?
The Coming Year
Tejas Dessai, AVP and research analyst at GlobalX ETFs, said that both stocks are very well positioned this year, but also acknowledged that there are some risks.
“Apple clearly has a growth problem,” Dessai said. “The iPhone business is pretty mature, China presents major headwinds and the company is viewed as a late entrant to artificial intelligence. But valuation is quite attractive, and the services and wearables business could continue to cut deeper. Meanwhile Microsoft is in a remarkable position to grow utilizing AI as a tailwind, but we think valuation is quite rich at this point and the immediate upside could be limited.”
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Growth
Winner: Microsoft
A company’s ability to grow its earnings over time is an important factor in its suitability as an investment, so knowing whether Apple or Microsoft is likely to grow faster will be a key consideration. Dessai isn’t the only one concerned with Apple’s growth prospects. The analyst consensus growth rate over the next five years for Apple is 11% per year, the lowest five-year growth rate of any Magnificent Seven stock. Compare that to Microsoft’s consensus growth rate of 16.3% and it’s clear which company is better positioned to grow in the near to mid term.
Valuation
Winner: Apple
While growth potential is important when evaluating a potential investment, valuation is equally if not more important. At the end of the day, price is what determines your return on investment, meaning even the very best companies can be a bad investment if you overpay.
One of the most common ratios used to measure valuation of publicly traded stocks is the price to earnings (P/E) ratio. The higher the ratio, the more richly a stock is being valued. As Dessai noted, Microsoft is trading at a higher multiple. Its trailing 12-month P/E ratio is 36.76, while Apple is trading at a ratio of 26.51, significantly lower. In simple terms what this means is that Microsoft must grow earnings much faster than Apple to achieve a similar return on investment.
Financial Strength
Winner: Apple
Understanding a company’s financial strength is a good way to help you know how risky of an investment the stock will be. While both Apple and Microsoft are massive companies and enjoy the financial stability that comes with size, that doesn’t mean they’re on equal footing. There are a million ways to measure financial strength, so it can be helpful to pick a measure that incorporates multiple factors. One such measure is the Piotroski F-score, named after its creator, Stanford accounting professor Joseph Piotroski.
The F-score looks at nine different metrics to assign a score between zero and nine. Scores of eight and nine are considered strong. Microsoft currently rates an F-score of seven, which is solid if not spectacular. Apple, however, receives an eight, indicating better overall fundamentals as a business.
The Winner Is: Apple
Obviously, as members of the Magnificent Seven, both Apple and Microsoft are outstanding businesses, and investors are unlikely to have a bad result investing in either. Right now, though, Apple appears to be the top choice to invest in based on the underlying fundamentals and cheaper valuation.
However, things can change quickly in the stock market, so be sure to review your investments on a regular basis to make sure you feel good about continuing to hold them.
Consider the Alternatives
It may also be worth your while to consider other investment options. Given the incredible run that the Magnificent Seven have been on over the last few years, there is a legitimate question of how long they can continue to outperform on that level. The tide may already be going out — Tesla, for example, is trading around $175, well below its 2023 high of almost $300 per share.
“Both [Microsoft and Apple] remain remarkable bets in the long run as we witness a moment of mass disruption unfold with AI,” Dessai noted. “But chances are most investors are also significantly exposed to both the names through their core S&P 500 or Nasdaq 100 exposure. We think growth in 2024 is going to favor companies benefiting from investments going into artificial intelligence, and we’d suggest investors look at non-Magnificent Seven stocks to capture maximum upside.”
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