The technology sector has been the driving force behind the market rally in 2024, fueled by the AI craze, expectations of rate cuts, and the dominance of the “Magnificent Seven.”
Apple and Microsoft are engaged in a fierce competition to secure the title of the most valuable company. Apple recently reclaimed the top spot from Microsoft, with a market cap of $3.26 trillion, slightly surpassing Microsoft’s $3.29 trillion valuation.
Apple
Apple, once lagging in AI adoption, has made significant strides after unveiling new AI features at its highly-anticipated Worldwide Developers Conference. The introduction of AI-powered capabilities is anticipated to drive the next wave of upgrades, boosting Apple’s performance and re-establishing investor confidence in the company.
The tech giant released Apple Intelligence, a revolutionary AI feature for iPhones, iPads, and Macs. This technology will enable text summarization, image creation, and data retrieval, enhancing user experience. Moreover, Apple’s collaboration with ChatGPT-maker OpenAI will integrate ChatGPT into Siri at no additional cost to users.
Apple’s strong second-quarter fiscal 2024 results exceeded both earnings and revenue expectations. The company initiated its largest buyback program to date and increased dividend payments.
Microsoft
Microsoft, the world’s largest software company, also reported robust third-quarter fiscal 2024 results, surpassing earnings and revenue forecasts thanks to the high demand for cloud and AI services.
With substantial investments in AI, particularly for its cloud computing services, Microsoft is reaping the benefits. Approximately 7% of Azure’s revenue growth can be attributed to AI. CEO Satya Nadella revealed that 65% of Fortune 500 companies utilize Azure, integrating OpenAI’s technology into their operations. The increasing demand for generative AI is expected to further bolster Microsoft’s cloud business.
Microsoft is focusing on AI innovation with new offerings like Microsoft Copilot, signaling a new era of AI utilization across industries and occupations.
As of current statistics, Microsoft has outperformed Apple this year, with a 17.7% increase compared to Apple’s 10.4% rise. Both companies hold a Zacks Rank #3 (Hold) and a Momentum Score of A, with favorable Zacks Industry Rank positioning.
Apple Vs. Microsoft
While Microsoft possesses a Growth Score of B, indicating strong growth potential, Apple appears relatively undervalued given its lower P/E ratio of 32.30 versus Microsoft’s 37.60. Apple’s earnings are projected to grow by 7.3% for the fiscal year (ending Sep 2024), exceeding the industry average of 30.68% growth. Additionally, Apple’s revenue is forecasted to rise by 0.4%, significantly higher than the industry’s 0.03% growth rate.
Looking at brokerage recommendations, Apple holds an average brokerage recommendation (ABR) of 1.75, consisting mostly of Strong Buy ratings. Microsoft, on the other hand, boasts an ABR of 1.13 with a high percentage of Strong Buy recommendations, indicating substantial growth potential for the company.
ETFs to Consider
Investors eyeing potential growth opportunities should consider including both Apple and Microsoft in their portfolios to leverage their growth prospects. Apple’s attractive valuation and innovative AI developments make it an appealing investment option. Meanwhile, Microsoft’s strong earnings outlook positions it for above-average growth.
For investors interested in exposure to both companies simultaneously, ETFs like Select Sector SPDR Technology ETF (XLK), MSCI Information Technology Index ETF (FTEC), Vanguard Information Technology ETF (VGT), and iShares Dow Jones US Technology ETF (IYW) offer a balanced approach. These ETFs hold substantial percentages of Apple and Microsoft stocks, with all four currently holding a Zacks ETF Rank #1 (Strong Buy).
Exciting possibilities lie ahead for both Apple and Microsoft, as they navigate the dynamic tech landscape and vie for supremacy in the market.