AAPL and MSFT have been long-time stalwarts in the portfolios of many investors. With the current turmoil bearing down on the markets, which of these stocks should you focus on?
Apple and Microsoft are two of the most well-known and successful companies in the world. Not only are they household names, these tech titans have also built up market capitalisations in the trillions of dollars.
Given the bleak market conditions the world is now facing, investors are understandably looking for safer grounds. With proven track records that stretch back to the early 2000s, both Microsoft and Apple offer viable options for investors looking to remain in the technology sector.
But which of these two offer the better deal, and what lies in store for them?
Apple and Microsoft compared to the rest of the market
|Apple Inc (APPL)||-27.54%|
|Microsoft Corporation (MSFT)||-27.63%|
Souce: Google Finance
Yes, the market is bad right now, like ‘sea of red’ bad, so it’s not surprising AAPL, MSFT and the S&P 500 (a market index tracking the top 500 companies in the US) are down across the board today compared to one year ago (at the time of writing).
Also, note that AAPL and MSFT are down by about 27%, which is just a few points lower than the entire S&P 500, at 21%.
But since investing is a long-term game, let’s zoom out a little bit and have a look at the figures in the past five years.
|Percent change in past five years|
|Apple Inc (APPL)||270.76%|
|Microsoft Corporation (MSFT)||246.09%|
Souce: Google Finance
By going back just five years, a very different picture emerges. As you can see, if you had bought AAPL or MSFT five years ago, you’d have more than doubled your capital — 2.7x for Apple stock holders, and 2.46x for those who held Microsoft equity.
That works out to yearly returns of around 20%, an impressive rate considering that the average stock market returns is only around 10% annually, before inflation.
Also, the S&P 500 provided returns of around 54% in the same timeframe, which means that both stocks outperformed the index by a factor of five.
Ok, so we’ve seen that AAPL and MSFT have put in sterling performances, thanks to their ability to continue dominating the market and keep up with consumer trends.
However, as past performance cannot be taken as an indicator of future performance, will these two stocks continue to remain solid investments?
Well, nobody can predict the future so the best we can do is to make an educated guess.
And to help us do so, we need to take a look at what both these companies are up to.
Outlook for Apple
Apple is today sitting on a market capitalisation of US$2.92 trillion.
Although things looked shaky for a while following the passing of Steve Jobs, the company has since rallied.
Apart from continuing to iterate on its flagship product, the iPhone, Apple also took steps to strengthen its foothold in consumer electronics and wearables by deepening its iPad, Macbook, Apple Watch and AirPods offerings. Meanwhile it is also making forays into media and entertainment with AppleTV.
And these moves have worked well.
A peek at Apple’s Q1 2022 earnings call reveals a giddying number of new records, among them: overall revenue (US$123.9 billion), operating cash flow (US$47 billion) net income (US$34.6 billion), Earnings-per-Share (US$2.10), iPhone revenue (US$71.6 billion), Mac revenue (US$10.9 billion), Wearables (US$14.7 billion), Services (US$19.5 billion).
Future growth plans
Apple is expected to launch a new low-cost, 5G-enabled iPhone that could prompt some 300 millions iPhone users to upgrade from older models, while also tempting a portion of Android users to make the switch.
Further, this move will dovetail nicely with the company’s plan to extend its reach in India, which is a lucrative market given its large population.
Additionally, having more iPhone users also means more entrants into Apple’s tightly forged ecosystem of apps, services and products, which creates potential for further growth down the line.
Outlook for Microsoft
It can be argued that Microsoft single-handedly brought about the personal computer industry because it created a user-friendly interface in the form of its Windows operating system.
Since then, the company has taken off and never looked back, and today sits on a market cap of US$2.37 trillion.
In its latest quarterly earnings report, the software behemoth had some impressive announcements of its own. The company saw a new record in revenue of its Microsoft Cloud division, increasing 32% year-on-year to hit US$22.1 billion.
This helped push its total revenue to US$51.7 billion (an increase of 20% year-on-year) and to achieve an Earnings-per-Share of US$2.48.
Other notable increases in revenue include: Azure (46%), Intelligent Cloud (26%), Productivity and Business Processes (19%) and Personal Computing including Windows (15%).
Future growth plans
Microsoft is looking towards the cloud for future growth.
The company has done very well as a cloud computing services provider, with market share of its Azure product growing by around 50% from FY2017. This is combined with an expected growth in the cloud computing market of over 20% in 2022 alone.
Another source of growth for Microsoft lies in video gaming.
The Xbox brand is already well-established, and FY2021 saw the company’s gaming division attaining a revenue of US$15 billion.
However, with the recent announcement of the acquisition of Activision Blizzard, the company is poised to increase its market share to over 14% of the multi-billion dollar industry, propelling it to becoming the third largest games developer in the world.
Conclusion: Which to buy in 2022 — AAPL or MSFT?
At the end of the day, both these stocks have equally compelling reasons to justify a place in your investment portfolio, or to take up a greater portion of it.
Even in the face of the COVID-19 pandemic and massive supply chain disruptions, both companies have achieved incredible results. There are also clear runways for long-term future growth, which don’t appear to overlap with (and hence, eat into) each other.
You may feel pulled towards one brand or another, but in investing, logic trumps emotion every time. So, the logical thing to do is to hold positions in both stocks, because why not?
Just remember that we are in for a severe recession, so be sure to be prudent with your money and never invest more than you can afford to lose.
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By Alevin Chan
An ex-Financial Planner with a curiosity about what makes people tick, Alevin’s mission is to help readers understand the psychology of money. He’s also on an ongoing quest to optimise happiness and enjoyment in his life.