Microsoft is surging ahead in the stock market, closing in on Apple. thanks to its appealing investment profile characterized by robust growth potential and lower exposure to China-related risks.
In recent weeks, Microsoft’s stocks have outshone Apple’s, leading to a significant convergence in market valuation. While a notable margin still separates the two giants, Microsoft’s supremacy in fields like cloud computing and artificial intelligence has captured the attention of investors.
David Klink, Senior Equity Analyst at Huntington Private Bank, stated, “Microsoft possesses the qualities that the market currently craves. Given our assessment of their growth prospects, it wouldn’t be surprising to witness Microsoft outpacing Apple. We have greater confidence in Microsoft’s profit margins, while the cloud and AI sectors promise sustained growth. It’s challenging to present a pessimistic case for Apple, given its services business, but the optimistic outlook distinctly favors Microsoft.”
The last time Microsoft eclipsed Apple in stock market capitalization was in November 2021. While Apple’s market capitalization has dipped from its zenith of nearly $3.1 trillion to approximately $2.8 trillion, it remains ahead of Microsoft’s roughly $2.4 trillion. Despite Apple’s shares experiencing a dip this month, Microsoft’s stock value has remained stable, leading to a narrowing of the discrepancy to approximately $200 billion at one point last week.
On Wall Street, a preference for Microsoft over Apple is palpable. Microsoft maintains a robust recommendation consensus, with nearly 90% of analysts advocating for the purchase of its stock, in contrast to fewer than two-thirds for Apple.
Despite neither stock being perceived as particularly inexpensive, Microsoft’s growth outlook bolsters its valuation, which stands at 29 times estimated earnings. Projections indicate double-digit growth in revenue and net earnings per share for fiscal 2024 and the subsequent three years, underlining the strength of the company’s cloud-computing division. Investors are also enthusiastic about Microsoft’s support for OpenAI, the rapidly growing startup behind ChatGPT.
On the flip side, Apple is emerging from its lengthiest downturn in two decades, experiencing three consecutive quarters of negative revenue growth. While a rebound is anticipated in Apple’s fiscal year 2024, and subsequent growth is projected, it is not expected to rival the robust trajectory predicted for Microsoft, as indicated by Bloomberg’s compiled data.
Analyst Toni Sacconaghi drew parallels between Apple and the former IBM, pointing out potential vulnerabilities in the face of advancing technology trends. The ascent of generative AI, this year’s paramount investment theme, may potentially position Apple in fourth place among US stocks, trailing behind Microsoft, Alphabet Inc., and Amazon.com Inc., according to insights from Needham.
Apple’s recent product debuts brought limited surprises, yet early indicators of strong demand are apparent. However, internal chip development at Apple may face delays, and a new release from Huawei Technologies Co. poses a competitive challenge. Moreover, apprehensions about government-imposed limitations on iPhones in China, which account for nearly one-fifth of Apple’s revenue, add to the uncertainties.
In stark contrast, Microsoft’s revenue from China constitutes less than 2%, a point emphasized by President Brad Smith during his recent Senate testimony.
Tim Ghriskey, Senior Portfolio Strategist at Ingalls & Snyder, commented, “Consistency holds significant value when assessing a company’s valuation, and at present, Microsoft enjoys an advantage over Apple due to its consistency and projected growth rate. While I hold both companies in high regard, the risk is higher with Apple.”
In 2023, Wall Street’s leading players have seen exceptional performance, leading to a notable disparity in returns among differently sized tech stocks. The S&P 500 tech sector index surged by 38%, eclipsing the 16% gain in its mid-cap counterpart, while small-cap tech stocks saw a more modest uptick of under 11% this year.
As the stock market landscape undergoes a transformative shift, the impressive strides of Microsoft towards Apple signify a potential turning point in their long-standing rivalry. With superior growth prospects and a diminished exposure to China-related risks, Microsoft’s ascent highlights a changing preference among investors in the dynamic competition between these tech giants in the stock market.
Source: Bloomberg
