Better Tech Action: Microsoft vs. Apple

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Which tech giant is the better bear market investment?
Apple (AAPL 1.15%) and Microsoft (MSFT 1.04%) were once considered aging dinosaurs of the tech sector, but both companies were reborn under visionary leaders. Steve Jobs’ return to Apple in 1997 led to the launch of innovative new products — including the iMac, iPod, iPhone, and iPad — which turned it into a high-growth company again. Apple’s future looked murky after Jobs passed away in 2011, but it continued to grow under Tim Cook, who oversaw the expansion of its business with new devices like the Apple Watch and AirPods, as well as sticky subscription-based services like Apple Music and Apple TV+.

Apple is vulnerable to supply chain interruptions and chip shortages because the majority of its revenue comes from hardware sales. Because software and services account for the majority of Microsoft’s revenue, it is better protected against these challenges. As interest rates increased, both of these stocks turned became safe-haven investments, but one is currently a better deal. Rare “All In” Buy Alert from Motley Fool The opinions expressed in this free article may not reflect those of The Motley Fool’s premium investing services. Become a member of The Motley Fool now for immediate access to our best analyst picks, in-depth analysis, investment resources, and more. Study More

Highlights

  • Over the past 10 years, Apple generated a total return of nearly 580% as Microsoft generated an even higher total return of more than 760%. Both of these blue-chip tech stocks are still solid long-term investments — but is one of them a better buy in this brutal bear market? The differences between Apple and Microsoft,. Apple generates most of its revenue from hardware devices, but Microsoft generates most of its revenue from software and cloud-based services. In the first half of fiscal 2022 (which started last September), Apple generated 55% of its revenue from iPhones, 10% from Macs, 7% from iPads, and another 11% from its wearables, home, and accessories segment. The remaining 18% of its revenues came from its services segment, which houses its App Store, Apple Pay, and subscription-based services.

  • Satya Nadella took the helm as Microsoft’s third CEO in 2014 and executed a “mobile first, cloud first” strategy to reduce its dependence on desktop software. Under Nadella, Microsoft converted most of its flagship software into subscription-based cloud services and cross-platform mobile apps, grew Azure into the second-largest cloud platform in the world, and strengthened its hardware business with new Surface devices and Xbox consoles.

Apple’s dependence on the iPhone makes it a more cyclical company than Microsoft. Apple’s iPhone sales surged 39% in fiscal 2021 after it launched the iPhone 12, the company’s first family of 5G devices, but it now faces much more challenging year-over-year comparisons with the iPhone 13. Chip shortages and supply chain disruptions are also exacerbating that slowdown.

Microsoft splits its sprawling business into three main segments: productivity and business processes (32% of revenue in the first nine months of fiscal 2022, which started last July), which houses Office, Dynamics, and LinkedIn; intelligent cloud (37% of revenue), which handles Azure and its server products; and more personal computing (31% of revenue), which includes its Windows, Xbox, Surface, search, and advertising businesses.

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