Both launched around the same time, in the mid-1970s. Their founders were the same age. (Truth be told, they were both my age.) Both had a long period of failure, Apple in the 1990s and Microsoft in the 2000s.
But both have come roaring back as cloud czars. Microsoft committed to the cloud in 2014, Apple a few years later. Both have been worth over $1 trillion. Microsoft still is.
While I own shares in both, the question is, which would I rather buy now?
Where They Stand
As trading opened July 5, Microsoft was selling for 30.5 times earnings and 9.4 times last year’s revenue, Apple for just 17.2x earnings and 3.65x last year’s revenue.
In its last fiscal year Apple brought 22% of its $265 billion in revenue to the net income line. Microsoft brought 16% of its $110 billion in revenue to the net income line.
When they last reported earnings, three months ago, Apple had about $80 billion in cash and short-term securities on its books. Microsoft had $131 billion.
Apple’s dividend of 77 cents/share represents a yield today of 1.52%. Microsoft’s 46 cents per share dividend offers a yield of 1.35%.
Microsoft is currently more highly valued than Apple. Investors are more confident of its growth and prospects. But does this confidence have a basis in fact?
Who Owns What?
In the continuing war between the network edge and network core, now called devices and cloud, Apple controls the edge and Microsoft the cloud.
Microsoft’s cloud is a platform on which it, and other companies, build software that they deliver as services to customers around the world. Apple’s cloud is built to create revenue from services, which now range from video and audio to payments and gaming.
Neither has a dominant position in its core area. Amazon.com (NASDAQ:AMZN) has more share of the cloud infrastructure market than Microsoft. Android from Alphabet (NASDAQ:GOOGL) has more share in the device market than Apple.
Microsoft has an enormous share of wallet among its cloud customers, even though many use other clouds and their own data centers. Apple has an enormous share of wallet among its device customers, an ecosystem that’s increasingly expensive to jettison.
The question is where you would want to be in 2019, in the devices or the cloud? For now, investors have determined it’s the cloud.
This could prove a bad bet, as the definition of devices changes.
But there’s another bet people are making with Microsoft, between being a brand and an ingredient.
Spoken interfaces illustrate this. Apple’s Siri is considered a success relative to Microsoft’s Cortana, but Cortana doesn’t need a smart speaker to succeed. Instead it lives inside other Microsoft products, just as the Azure cloud delivers software from companies like salesforce.com (NASDAQ:CRM) and Adobe (NASDAQ:ADBE).
Microsoft is becoming more like Intel (NASDAQ:INTC) was 20 years ago, an ingredient brand, while Apple depends almost entirely on the consumer market for its earnings.
Bottom Line on Microsoft Stock
If I had a thousand dollars to put on either Apple stock or Microsoft stock today, I’d put it on AAPL. It’s undervalued, relative to the market, while MSFT is overvalued.
Both Apple and Microsoft will continue to rise so the best bet is to own both, as I do. These are core holdings for the decade of artificial intelligence that will be the 2020s. As has been true since they first went public in the 1980s, this is a choice where you may make a mistake in the short run, but in the long run you can’t lose.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new environmental story, Bridget O’Flynn and the Bear, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in MSFT, AAPL and AMZN.