Apple, Inc. (AAPL) is the world’s largest tech company, with a market capitalization of $ 2.41 trillion as of July 7. AAPL crossed the $ 2 trillion mark in August 2020, becoming the first American company in history to do so. Ranked # 1 on the Forbes list of the top 100 digital companies in the world and # 3 on the Fortune 500 list, AAPL is one of the world’s most valuable companies.
Software giant Microsoft Corporation (MSFT) crosses $ 2 trillion market capitalization mark June 22. The company’s continued dominance in software and cloud computing has allowed it to double its market capitalization in two years, after hitting the $ 1,000 billion mark in 2019. MSFT is currently ranked no. # 15 on the Fortune 500 list and # 2 in the Forbes Top 100. List of digital companies. It had a market cap of $ 2.11 trillion as of July 7.
AAPL has gained 55.2% in the last year, while MSFT has returned 34.4% in this period. However, in terms of performance since the start of the year, MSFT is the big winner with gains of 25.9% against AAPL’s 9% returns. AAPL shares jumped 14.8% over the past month, topping MSFT’s 10.3%.
Click here to view our Software Industry Report for 2021
But which stock is a better buy now? Let’s find out.
On June 8, AAPL previewed powerful new privacy protections in its operating systems, designed to provide better control and management of data. These updates reflect the company’s heritage of privacy leadership across the industry. Also on June 8, the company unveiled new developer tools and technologies to help developers create user-friendly and more engaging app experiences. As more developers subscribe to these services, AAPL’s revenue from the “Service” segment is likely to increase dramatically.
In May, AAPL awarded a leading manufacturing award of $ 410 million to the leading producer of optical technology II-VI. This investment should make it possible to accelerate the production capacity of II-VI. The company manufactures components for iPhone. In addition, II-VI laser products are expected to be a key raw material in AAPL’s LiDAR-based electric vehicles.
MSFT is currently preparing to release Windows 11, its major software update since 2015. The latest operating system is designed to compete with AAPL operating systems. Scheduled to launch by the end of this year, the product is expected to significantly increase MSFT’s software sales over the next few months and is expected to become a major competitor to macOS.
MSFT’s Azure cloud services software has gained traction over the past year, with several leading companies deploying Microsoft Azure technologies to facilitate their cloud operations. MSFT has signed agreements with telecommunications giant AT&T, Inc. (T), Morgan Stanley (MS) and Mars Incorporated in the past two months. The company collaborated with MicroFocus International in May to provide cloud and digital transformation services to government agencies.
Recent financial results
MSFT’s revenue increased 19% year-on-year to $ 41.70 billion in its fiscal third quarter, ended March 31, 2021. Its operating profit was $ 17 billion, in 31% increase over the same period last year. Its non-GAAP net income improved 38% from a year ago quarter to $ 14.80 billion. And its non-GAAP EPS stood at $ 1.95, indicating a 39% increase from last year’s value.
For the fiscal second quarter, ended March 27, AAPL’s revenue increased 53.6% year-over-year to $ 89.58 billion. This can be attributed to a 61.6% increase in “product” revenue to $ 72.68 billion, thanks to record Mac sales during this period. Its operating profit and net profit improved 114% and 110.1%, respectively, from the same period last year to $ 27.50 billion and $ 23.63 billion. And its EPS stood at $ 1.40, reflecting a 118.8% increase from the previous year’s quarter.
Past and expected financial performance
MSFT’s revenue and net profit grew 14.8% and 52.6% CAGR, respectively, over the past three years. The company’s EPS has grown at a CAGR of 53.7% and 53.7% over the past three years, while its tangible book value has increased by 29.7% during that time.
In comparison, AAPL’s revenue and net profit have grown at a CAGR of 9.6% and 12.7%, respectively, over the past three years. Its EPS has grown at a CAGR of 19.8% over the past three years, while tangible book value has declined at a rate of 18.3% per annum during this period.
Analysts expect MSFT’s revenue to grow 16% in its fiscal fourth quarter (ended June 2021), 16.2% in the current year, and 12.3% l ‘next year. Consensus EPS estimates point to a 30.1% year-over-year improvement in the quarter to be released, 34.9% in 2021, and 7.7% in 2022.
By comparison, AAPL’s revenue is expected to grow 22.2% in the last quarter (ended June 2021), 29.2% in 2021 and 4% in 2022. The Street expects The company’s EPS increases 56.2% in its fiscal third quarter, 57.9% this year and 3.1% next year.
Both companies have beaten consensus EPS estimates in each of the past four quarters, which is impressive.
AAPL’s turnover for the last 12 months is 2.03 times that of MSFT. However, MSFT is more profitable, with a gross profit margin of 68.38% compared to 39.88% for AAPL.
In addition, MSFT’s respective EBITDA and profit margins of 47.25% and 35.02% are significantly higher than AAPL’s 30.68% and 23.45%.
So, MSFT is the most profitable stock here.
In terms of non-GAAP forward P / E, MSFT is currently trading at 36.03x, which is 28.9% higher than the AAPL, which is currently trading at 27.96x. MSFT’s non-GAAP term PEG of 2.32 is 13.2% higher than AAPL’s 2.05.
In addition, the respective price / sales and price / cash flow multiples of AAPL 7.42 and 23.80 over the past 12 months compare to MSFT’s 13.12 and 28.76.
So, AAPL is the most affordable stock here.
MSFT has an overall rating of B, which is equivalent to Buy in our proprietary POWR rating system. AAPL, by comparison, has an overall rating of C, which translates to Neutral. POWR scores are calculated taking into account 118 different factors, each factor being weighted to an optimal degree.
MSFT has a stability rating of B, which corresponds to its relatively low beta of 0.79. AAPL has a C rating for stability. This is justified, given its relatively high beta of 1.21.
Both stocks have a B grade for quality, due to their average profit margins above those of the industry. AAPL’s 23.45% net profit margin is 382.1% above the industry average of 4.86%, while MSFT’s 35.02% net profit margin is 619.8 % higher than the industry average.
Of the 131 stocks in the Software – Applications sector, MSFT is ranked n ° 19. By comparison, AAPL is ranked # 24 out of 45 stocks in the technology sector ranked B – computer hardware.
In addition to the highlighted ratings, we rated stocks for value, momentum, growth, and sentiment. Click here to see all MSFT ratings. Get all AAPL ratings here.
AAPL and MSFT dominate their respective industries. However, MSFT is currently making an extra effort to increase its reach in the market with the latest product and service launches. Its Windows 11 should be a major competitor to AAPL’s operating systems, especially in terms of price. This, along with its higher profit margins, makes MSFT a better buy.
Our research shows that the chances of success increase when investing in stocks with an overall POWR rating of Strong Buy or Buy. Click here to view the top rated stocks in the Software – Applications sector. Also get the top rated stocks in the Technology – Hardware sector here.
AAPL shares were trading at $ 143.33 per share on Thursday afternoon, down $ 1.24 (-0.86%). Year-to-date, AAPL has gained 8.36%, compared to a 16.04% increase in the benchmark S&P 500 over the same period.
About the Author: Aditi Ganguly
Aditi is a seasoned content developer and financial writer who is passionate about helping investors understand the dos and don’ts of investing. She has a keen interest in the stock market and has a fundamental approach to stock analysis. After…