Better Growth Stock: Apple vs. Microsoft
Investors have been on a roller coaster the last few years, with the COVID-19 pandemic sending many tech stocks skyrocketing. Then, countless companies watched their stocks take a deeper dive amid last year's economic downturn.
In 2023, the market has been in recovery mode, with Wall Street once again optimistic about the prospects of several industries. However, recent volatility makes now a smart time to consider investing in growth stocks that are likely to rise over the long term and fortify your holdings in the event of temporary headwinds.
As the world's two most valuable companies by market cap, Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT) are attractive options. These companies are home to potent businesses that have won over consumers and have histories of consistent stock growth.
However, if you only have room to add one to your portfolio, it's wise to find out which company is currently the better buy. So, let's examine whether Apple or Microsoft is the better growth stock.
Apple
Apple has long had a reputation as a reliable growth stock, with its annual revenue and operating income up 48% and 68% in the last five years. In the same period, its stock has climbed nearly 300% as investors have seen the company as a haven amid macroeconomic declines.
The tech giant's stability is largely owed to the success of its smartphone business, with the iPhone achieving a majority market share in the U.S. last year by surpassing Alphabet's Android. The achievement strengthens Apple's outlook, as the iPhone is its best tool for attracting consumers to its other products and services. Essentially, the more iPhone users there are, the more sales in the company's other segments.
Apple has attained leading market shares in several of its other product categories, like tablets, smartwatches, and headphones, almost entirely thanks to the dominance of the iPhone. The connectivity between all its products promotes ease of use and makes consumers less likely to seek competing options.
As a result, Apple's recent venture into the $31 billion virtual/augmented reality market with a new headset is promising for its long-term future. The company's brand loyalty from consumers could see it climb to the top of the high-growth market, adding another lucrative revenue stream to its business.
Microsoft
Like Apple, Microsoft has built a rapport with its user base, which has grown to depend on its products. Programs like its Office productivity suite and Windows operating system have become the industry standard in their respective markets. Meanwhile, other brands like Xbox, Azure, and LinkedIn diversified Microsoft's business and granted it substantial market shares in other high-profit sectors. As a result, the company's revenue has risen 80% more than the last five years, with operating income increasing 138%.
Moreover, Microsoft has been featured in countless headlines this year because of its expanding position in artificial intelligence (AI). In 2019, the company became the biggest backer of OpenAI, the start-up behind ChatGPT. The collaboration allowed Microsoft to take the lead in the burgeoning market, using OpenAI's technology to enhance several of its platforms. Meanwhile, competitors like Amazon and Alphabet have been left playing catch-up.
Microsoft's shares have increased by 235% in the last five years. As its business continues to expand and its position in AI develops, the company has the potential to continue on its current growth trajectory.
Is Apple or Microsoft the better buy?
Apple and Microsoft are both reliable long-term investments and solid growth stocks. These companies are pillars of the tech community, with their dominance spanning multiple markets. As a result, determining which is the better buy largely depends on which is currently trading at a better value.
Data by YCharts
This chart compares Apple's and Microsoft's forward price-to-earnings and price-to-free cash flow ratios, which are helpful metrics to determine the value of a stock. In both cases, Apple's lower figures indicate its stock offers more value than Microsoft.
Consequently, Apple is currently the better growth stock. However, it's still wise to keep Microsoft on your radar for the next time you're looking to expand your portfolio.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon.com, Apple, and Microsoft. The Motley Fool has a disclosure policy.
