Microsoft and Apple are the two biggest companies in the world, with a combined market value of more than $4 trillion. In other words, the two companies are bigger than the GDP of all companies in the world after the United States, China, and Japan.
Investors love both mostly because they offer value and growth. In this article, we will look at the two companies and identify the better one to invest in, especially for retirement investing.
Microsoft vs. Apple: Shares Performance
For the future outlook, it is important to look briefly at the past performance. Microsoft and Apple have generally performed well historically. Since the late 1980s, the two companies have returned more than 26,000% and 8,000%, respectively. This means that, in the long-term, Microsoft has been a better performer.
MSFT versus AAPL long-term performance
This is mostly because of the business it has been in during this period. The company made billions of dollars selling Windows — the most popular desktop operating system in the world. It also sold Microsoft Office, the most popular desktop publishing platform globally.
Apple, on the other hand, sold computers to a relatively small niche of customers.
In the past five years, however, Apple shares have jumped by more than 470%, while Microsoft has rallied by about 400%. This performance comes at a time when the two companies are evolving their business models. Apple has invested heavily in its services business division, while Microsoft has become a major player in cloud computing.
MSFT versus AAPL 5-year chart
Microsoft vs. Apple: Business lines
As previously mentioned, Microsoft and Apple are great companies because they offer both value and growth. The latter point is important because the companies are constantly evolving and boosting their business model.
For example, in the past decade, Microsoft has moved from making most of its money on Windows and Office to become a leading player in other business lines.
For example, it recently launched Microsoft Teams, which has become the biggest corporate communication company in the world. It has also launched Azure, which is the second-biggest cloud computing company in the world after Amazon Web Services.
Apple, on the other hand, has a strong iPhone business whose growth is still strong. At the same time, it is pivoting towards services, which has become the fastest-growing business. It has also put more emphasis on its accessories business that is also growing fast.
In all, Microsoft and Apple are competing in large businesses with a large total addressable market (TAM). They are also constantly evolving and boosting their product offerings. This trend will continue for decades to come.
MSFT vs. AAPL results
The two companies have had incredible results. Indeed, they both grew their revenue and profitability in 2020 amid the global pandemic.
For Microsoft, the pandemic led to a major growth of its cloud computing business. Services like Microsoft Teams saw millions of new customers. Its gaming products also did well as many people stayed at home.
Apple, on the other hand, did well as demand for iPhones, iPads, and Macs surged as people stayed at home. This also spurred people to use its services like Apple Music and Apple News+ more.
In total, Microsoft generated more than $143 billion in revenue and more than $44 billion in net profit in 2020, while Apple made more than $274 billion in revenue and $57 billion in profits. Therefore, it is clear that Apple generates more money and profits than MSFT.
Still, a closer look shows that Microsoft has a bigger profit margin than Apple. The most recent earnings showed that MSFT’s net profit margin was at 35% while Apple was at 21.73%.
Another fact is that MSFT sees a faster revenue growth than APPL. In their first quarter of 2020, the two companies’ revenue growth was 15.34% because of Azure and 9%, respectively.
Pros and cons for Microsoft
There are pros and cons of investing in the two firms but, in my view, Microsoft is a better investment. For one, the company’s fastest-growing business is Azure, where it provides cloud computing products to businesses and governments.
For example, it is the main provider of cloud products to most departments of the American government. This business is important because of how complex it is and how difficult it is for companies to migrate from it. This helps ensure that the company will generate returns from the service in perpetuity.
Most importantly, while Microsoft has some consumer-facing products like Bing and devices, most of its business comes from companies. It is companies that buy most of its Microsoft Office suites and other products. Business customers have a lower churn than individuals.
The main con for investing in Microsoft is that the company is known for spending a fortune on acquisitions. It spent more than $20 billion acquiring LinkedIn, and in 2020, it was in contention to acquire TikTok. In 2021, it wanted to spend more than $12 billion to acquire Discord. While acquisitions are good, they are also risky because most of them fail.
Pros and cons of Apple
There are several benefits of investing in AAPL. First, the company makes some of the best-known consumer and business devices in the world. In fact, it generates most of its revenue from the iPhone, which is the second-biggest brand in the world.
Second, Apple’s services business is growing rapidly. The company has hundreds of millions of subscribers, who pay a fee every month. With churn being low, it means that the company will keep generating exciting returns for decades.
Third, Apple has a strong brand and balance sheet. It has the most cash in the world, which gives it much firepower to invest in R&D and acquisitions.
However, there are some cons, with the main one being that its revenue is mostly driven by the iPhone. This could change in the future. Also, Apple mostly focuses on the consumer, who are mostly affected during periods of strain.
To be clear. The two companies are important and good companies to invest in, especially when you have a long-term view.
Another important factor is that the two are simply unavoidable to most investors in the United States. Furthermore, they have the biggest weighting in the S&P 500 and Dow Jones indices. This means that any American with a 401(K) has invested in the companies. Still, if I was to choose one, I would prefer Microsoft.