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Comparing the Prospects: Microsoft vs. Apple

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Considering the ongoing bullishness about tech stocks, especially with the burgeoning artificial intelligence (AI) sector and the alleviation of inflation fears, the Nasdaq-100 Technology Sector index has witnessed a remarkable 47% surge since last February.

As the two most valuable companies globally and frontrunners in technology, Microsoft (NASDAQ: MSFT) and Apple (NASDAQ: AAPL) have experienced stock ascents of 54% and 18% respectively over the same period. These companies are deemed the most promising investment options in the industry, with one reigning supreme in productivity software while the other dominates the consumer tech market.

Microsoft and Apple boast rich histories of consistent stock growth, a trend that is expected to persist. Over the past year, Microsoft has emerged as a dominant force in AI. Meanwhile, Apple enjoys a highly lucrative services business and is progressively gaining ground in the virtual reality/augmented reality (VR/AR) realm.

Microsoftโ€™s Dominance

In January, Microsoft surpassed Apple to become the worldโ€™s most valuable company, with its market cap slightly exceeding $3 trillion.

The company is an industry titan with stakes in various tech segments, excelling in productivity software, game consoles, cloud computing, and operating systems. Its multifaceted business model positions it to capitalize on favorable trends across tech, making its stock an exceptionally reliable choice.

Since 2019, Microsoft has witnessed a 68% upsurge in annual revenue, alongside a 106% increase in operating income. Furthermore, its free cash flow surged by 76% to $67 billion.

The company boasts substantial cash reserves, enabling continuous investment in its business and the preservation of its influential role in the tech landscape. Microsoftโ€™s foray into AI leadership followed a multi-billion-dollar investment in OpenAI, the developer of ChatGPT. This partnership granted Microsoft access to some of the most advanced AI models in the sector, establishing a lucrative position in this emerging industry.

Analysts project a 37% compound annual growth rate (CAGR) for the AI market until 2030, propelling it to nearly $2 trillion by the end of the decade. Microsoft, leveraging OpenAIโ€™s technology, has integrated new AI features across its product spectrum. In 2023, the company introduced fresh AI tools to its Azure cloud platform, incorporated aspects of ChatGPT into its Bing search engine, and enhanced productivity in its Office software suite through AI.

Appleโ€™s Challenges

Apple faced considerable adversity over the past year. In 2023, macroeconomic challenges caught up with the company, resulting in four consecutive quarters of revenue decline.

However, the company managed to break the streak in its latest quarter, registering a 2% year-over-year revenue increase to $120 billion in the first quarter of 2024, surpassing Wall Street forecasts by over $1 billion. Despite this, concerns about its iPhone business persisted, leading to a nearly 6% year-to-date stock decline.

While smartphone sales climbed 6% in Q1 2024, they plummeted by 13% in China, a market where increased iPhone regulations pose a threat to Appleโ€™s third-largest source of revenue.

Due to these challenges, Apple is diversifying its product portfolio and focusing on digital markets like services to reduce its dependence on iPhone sales. The launch of the Vision Pro, its initial VR/AR headset earlier this year at a price of $3,499, has generated substantial excitement for the technology. By considering Appleโ€™s historical pricing strategy and the potential for cost reduction in subsequent product generations, an investment in Apple could signify support for the future VR/AR market leader.

The VR market alone is forecasted to maintain a CAGR of 31% until at least 2030, making it strategic to consider investing in this tech behemoth during the inception of its venture into this industry.

With a free cash flow surpassing $107 billion last year, Apple has the financial resources to overcome current headwinds and continue investing in high-growth tech domains.

Choosing the Superior Tech Stock

Microsoft and Apple hold promising long-term prospects, with opportunities to benefit from various tech subsectors.

Yet, Microsoftโ€™s stronger emphasis on digital markets such as cloud computing and AI renders it less vulnerable to macroeconomic headwinds and potentially a more dependable investment.

Moreover, earnings-per-share estimates indicate that Microsoft has greater growth potential than Apple in the near term.

AAPL EPS Estimates for 2 Fiscal Years Ahead Chart

Data by YCharts

Projections suggest that Microsoftโ€™s stock could reach $546, marking a 35% upturn, while Appleโ€™s could hit $218, a 20% increase by fiscal 2026. Should these forecasts materialize, Microsoft appears poised for more substantial growth, making it the better tech stock to purchase this month.

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Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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