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Apple Vs. Microsoft AI Battle Heats Up: Who Will Come Out on Top in the Long Run?

Published 06/17/2024, 09:11 AM

Apple (NASDAQ:AAPL) dethroned Microsoft (NASDAQ:MSFT) as the world's most valuable company last week, driven by a surge in anticipation of its upcoming AI technology. The iPhone maker's market cap ballooned to a staggering $3.3 trillion, surpassing Microsoft's $3.29 trillion for a while, before closing lower.

Fueled by a $3 billion growth in just one day, Apple's rise to the top reflects investor excitement around its forthcoming AI advancements. However, the battle for tech supremacy is far from over. Microsoft is expected to remain a fierce competitor in the AI race, while Nvidia (NASDAQ:NVDA) lurks close behind with a market cap of $3.24 trillion.

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Coming back to the topic, both Apple and Microsoft boast leadership positions in their respective markets, loyal customer bases, and now, fierce competition in the red-hot AI space. In this dynamic technological landscape, strategic foresight is crucial to navigate contemporary challenges and secure a dominant future.

Leveraging InvestingPro's advanced tools, we delve deeper to compare Apple and Microsoft's current positioning and identify which company offers the more attractive investment opportunity.

Apple: Strong Financials, Overheated Valuation?

Apple, the current market cap leader, closed Friday at $212.49, up 10.4% year-to-date. However, InvestingPro's analysis suggests a potential correction.

Their fair value estimate, based on 14 valuation models, averages $172.42, implying a possible 19.2% devaluation in the next year. Even the most optimistic model suggests a 9.3% drop. Analyst targets also lag the current price, with a median of $204.76 (down 3.6%).

Apple Fair Value

Source: InvestingPro

Despite the high valuation, Apple boasts a strong financial health score of 3.05 (above average). This score could be higher, but the Relative Value category suffers due to inflated valuation multiples (P/E, P/BV, EV/EBITDA). Excluding this, the score jumps to 3.54.

Apple shines in Price Trend (4.25) and Profitability (4.55). Earnings metrics like Cash Return on Invested Capital (58.1%), Return on Assets (30.0%), ROE (147.3%), and Return on Invested Capital (57.3%) are all positive. Additionally, they reported net profits of $96.9 billion in 2023 and $23.6 billion in Q1 2024.

Apple Sector Comparison

Source: InvestingPro

Overall, analysts believe that Apple will continue to be profitable in 2024, which should maintain the dividend payments that have lasted for 13 years -- with growth in value over the last 12. If the company successfully executes its AI strategy and rides the current wave, the already positive outlook could become even brighter in the coming months.

Microsoft: Growth Potential Despite Valuation Concerns

Microsoft, despite recently losing its market value lead, remains optimistic for growth. The stock price closed at $442.57 last Friday, reflecting a 17.7% year-to-date increase. However, InvestingPro's fair value estimates suggest a potential 14% downside risk. The average fair value across 14 valuation models for the next 12 months sits at $381.82.

MSFT Fair Value

Source: InvestingPro

While the most optimistic model (10-Year Discounted Cash Flow with EBITDA Exit) predicts a fair value of $437.43 (only a 1.2% decrease), analyst price targets are generally bullish. The median analyst price target of $488.37 implies potential 10.3% appreciation.

Microsoft boasts a slightly higher overall financial health score (3.14) compared to Apple. However, similar to its rival, high valuation multiples drag down the score, particularly in the Relative Value category (1.14). P/E ratio (38.2x), P/BV (13.0x), and EV/EBITDA (26.3x) are among the contributors. Excluding Relative Value, the company's average score jumps to a healthy 3.64.

MSFT Sector Comparison

Microsoft excels in Price Trend (4.06) and Profitability (4.28). The company boasts impressive profitability metrics, with EBITDA Margin (53.3%), Net Margin (36.4%), and Operating Margin (45.0%) all standing out. Additionally, the company reported strong earnings in 2023 ($72.3 billion net profit) and Q1 2024 ($21.9 billion net profit).

Finally, Microsoft has maintained dividends for 22 consecutive years and increased them for the last 18. The trend is also to maintain profitability in 2024, with hope that the billion-dollar investment in OpenAI, creator of ChatGPT, will pay off in the race to dominate the artificial intelligence market.

Apple vs. Microsoft: A Battle for AI Supremacy

The race for artificial intelligence supremacy is heating up, with tech titans Apple and Microsoft locked in a fierce competition. Here's a quick comparison of their current standing:

  • Market Value: Apple holds a slight lead at $3.30 trillion compared to Microsoft's $3.24 trillion.
  • Fair Value Upside: However, analysts believe Microsoft has more room to grow, with a potential upside of 13.7% compared to Apple's -21.2%.
  • Financial Health Score: Both companies boast a "B" rating, with Microsoft edging out Apple with a score of 3.14 versus 3.05.
  • Financial Performance: Apple dominated in 2023 with a profit of $96.9 billion compared to Microsoft's $72.3 billion. This trend continued in Q1 2024 with Apple pulling in $23.6 billion in profits compared to Microsoft's $21.9 billion.
  • Free Cash Flow: Apple continues to lead in free cash flow, generating $101.9 billion compared to Microsoft's $70.6 billion.
  • Debt-to-Equity Ratio: However, Microsoft boasts a significantly healthier debt-to-equity ratio at 42.0% compared to Apple's hefty 141.0%.


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Disclaimer:This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

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