Better Buy: Apple vs. Microsoft

It has been more than a decade since Apple (AAPL -3.37%) ran its “Get a Mac” campaign, a series of television ads featuring a casually dressed man named Mac and a formally dressed man in a suit and tie portraying a Microsoft (MSFT -3.64%) personal computer (PC). The ads ran from 2006 to 2009 and often portrayed Apple computers as faster and more modern, while Microsoft PCs were slow and outdated.

Now a piece of history in the tech world, the ad campaign was one of the last times Apple and Microsoft really squared off for all to see, as business has diverged slightly. These days, Apple is more often compared to companies like Samsung for their smartphones or even Netflix when talking about streaming video. Meanwhile, Microsoft is in a very heated console war with Sony.

However, Microsoft has gone after Apple in recent years with its line of premium Surface laptops and tablets to more closely compete with MacBooks and iPads. As a result, technology investors might be wondering which shares of the company are the best to buy. Let’s find out.

Microsoft: A better buy in the short term

Tech stocks have fallen out of favor in 2022, with the Nasdaq-100 Technology Sector the index is down 30% so far this year as rising inflation and fears of a recession slowed consumer spending. Microsoft has been similarly affected, losing a more moderate 20% in its share price over the same period. The company is home to leading brands like Xbox, Windows and Office, yet declining demand in the PC market has caused its shares to plummet. Its recent drop could make it an excellent stock for investors with shorter-term goals.

Microsoft’s price-earnings ratio is 25% lower than it was a year ago and considerably lower than its average, suggesting its financials are in better shape than its share price represents. Since July 2021, Microsoft’s revenue has grown 18% to $198 billion, and free cash flow has increased 16% to $65 billion. Meanwhile, its cloud computing service, Azure, claimed 24% of cloud infrastructure spending in the second quarter of 2022, an increase of 22% from the previous year.

As Microsoft’s cloud business flourishes, its gaming efforts are also on the rise. His planned acquisition of the game company. Activision Blizzard will see Microsoft become the third largest game company by revenue after Tencent Holdings and Sony. The landmark deal, worth $68.7 billion, is expected to close in mid-2023 after a review by regulators. Warren Buffett has made headlines multiple times by buying Activision stock prior to the takeover, most recently raising Berkshire HathwayShares in August from 64.3 million to 68.4 million (worth $5.3 billion).

Apple: A Great Stock for Patient Investors

Microsoft offers a lot to like, but as one of the world’s most innovative companies, Apple is the best stock for investors looking to buy and hold for the long term. The iPhone company has shown its relative stability in 2022 with its shares falling just 10% so far this year, half the drop in Microsoft.

The company has no known acquisitions or events as significant as Microsoft’s purchase of Activision coming soon, but it has posted growing revenue and net profit for the past three years despite a global pandemic. In 2019, Apple’s net sales totaled $260.2 billion; in 2020, it was $274.5 billion; and in 2021 it jumped to $365.8 billion. Net income also increased 71.3% in the same period, reaching $94.7 billion.

Apple has continued to prove that it’s a stock worth holding on to, reporting $83 billion in revenue in the fiscal third quarter of 2022 (ended June 25), a record for the company, and up 2% from past year. Like clockwork, the company has forecast strong iPhone sales in 2023, with its current quarter likely to get a boost from its new product lineup announced on September 7. Products include four new iPhones, which have received substantial price increases abroad, and an all-new Apple Watch Ultra that caters to a new market: the outdoor adventurer.

Microsoft and Apple are promising companies with a bright future. Both would be good investments. As for which is the best buy, the answer depends on your investment strategy. Investors looking for a stock to buy down 20% should set their sights on Microsoft. However, those looking for a stock to hold onto for years, with the ability to continue to innovate, should look to Apple.

dani cook has no position in any of the mentioned stocks. The Motley Fool has positions and recommends Activision Blizzard, Apple, Berkshire Hathaway (B shares), Microsoft and Netflix. The Motley Fool recommends the following options: Long January 2023 $200 Call on Berkshire Hathaway (B-stock), Long March 2023 $120 Call on Apple, Short January 2023 $200 Put on Berkshire Hathaway (B-stock), short January 2023 $265 Call on Berkshire Hathaway (B shares) and short $130 March 2023 calls on Apple. The Motley Fool has a disclosure policy.

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