In this article, I evaluate two leading technology stocks, Apple (AAPL) and Microsoft (MSFT), to determine which is the better investment. In preview, I have a neutral view of Apple and a bullish outlook on Microsoft.
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Apple is known for its popular consumer electronics such as the iPhone, iPad, Apple Watch, and MacBook computer. The company also provides digital content via its App Store, Apple TV, and the Apple Card payment service. Microsoft is known for the Windows personal computer (PC) operating system, its Office 365 software suite, the Xbox video game console, and its Azure cloud computing platform.
AAPL stock has risen 13% year-to-date and is up 22% over the last year. Microsoft’s share price has gained 15% year-to-date and is up 32% over the past 12 months. These share price performances make Apple and Microsoft the laggards of the so-called “Magnificent Seven” technology stocks, with only Tesla (TSLA) performing worse. AAPL and MSFT stocks have also underperformed the tech-laden Nasdaq Composite index that is up nearly 20% this year.
Apple (AAPL)
The valuation of Apple stock has a lot to do with my neutral view. Currently, AAPL is trading at 32 times future earnings estimates, which is less than the average price/earnings ratio of 44 among technology stocks. MSFT is also trading at a higher multiple of 36 times future earnings expectations. Additionally, Apple’s stock has been largely trading sideways since June of this year. Because of this, a neutral view of the stock seems appropriate.
There are also concerns about iPhone sales to consider. When the company launched the iPhone 16 earlier in September, AAPL stock jumped. However, there have been reports about weak sales immediately following the newest iPhone’s public unveiling. Analyst Ming-Chi Kuo has said that iPhone 16 demand is weak, dropping 12% compared to last year’s iPhone 15 launch.
Kuo and other analysts have also expressed disappointment with the lack of new features on the iPhone 16. One of the most anticipated features, the company’s AI application known as “Apple Intelligence,” won’t launch until October of this year and is only in a beta format. Of course, Apple remains a strong company overall, and the current iPhone slump is likely temporary. However, patient investors might be able to buy the stock at a more attractive share price in the coming weeks if iPhone 16 sales disappoint.
Is AAPL Stock a Buy?
Apple has a consensus rating of Moderate Buy among 32 Wall Street analysts. There are currently 23 Buy ratings, eight Hold ratings, and one Sell recommendation assigned to the stock. At $249.46, the average Apple stock price target implies upside potential of 15.39%.
Read more analyst ratings on AAPL stock
Microsoft (MSFT)
There are many reasons to be bullish on MSFT stock. Like Apple, Microsoft is trading at a discount to the technology sector. Microsoft’s stock has been in decline in recent months, falling 7% since early July. Some of that decline has been reversed on news that the company is raising its dividend by 10% and has approved a new $60 billion stock buyback program, boosting shareholder returns in the process. The company raised its dividend from $0.75 to $0.83 per share, payable on Dec. 12 of this year.
Microsoft also continues to be a leader in artificial intelligence (AI) and cloud computing, capturing market share in both fast-growing segments. Microsoft’s Azure cloud platform continues to grow at a brisk clip and is more all-encompassing than Apple’s upcoming AI features for the iPhone.
Is MSFT Stock a Buy or Sell?
Microsoft has a Strong Buy consensus rating based on the views of 30 Wall Street analysts. This is comprised of 29 Buy and one Hold rating on the company’s stock. No Sell ratings have been assigned over the last three months. At $501.15, the average price target on Microsoft stock implies upside potential of 16.16%.
Read more analyst ratings on MSFT stock
Conclusion
Apple and Microsoft could be long-term additions to any portfolio. However, Microsoft is preferred based on the company’s leadership role in AI and future growth potential. The fact that the company raised its dividend payout to shareholders and initiated a $60 billion share repurchase program are other reasons to like MSFT stock. Apple, on the other hand, is struggling with weak iPhone demand and to clarify its AI strategy. As such, I remain bullish on MSFT stock and neutral on AAPL stock.
