Should Investors Buy Microsoft Stock Instead of Apple Stock? | MSFT Stock vs. AAPL Stock

SUMMARY

Parkev Tatevosian, CFA, compares Microsoft and Apple on revenue growth, profitability, and valuation to determine which is the superior investment in 2026. He concludes that Microsoft currently offers better value and risk-reward characteristics than Apple.

MAIN POINTS

• Apple has outperformed Microsoft year-to-date in 2026, prompting a comparison of their revenue and profitability metrics. [0:00]
• Microsoft's underperformance is partly due to investor concerns about its exposure to OpenAI, while both companies show strong but mixed profitability metrics. [1:01]
• Apple benefits from a capital-light business model by outsourcing manufacturing, while Microsoft enjoys high profit margins from software and AI investments. [2:01]
• The data center market remains lucrative, and recent valuation trends show Apple trading at a significant premium to Microsoft. [3:02]
• Microsoft faces structural risks from AI advancements potentially threatening its Windows dominance, contributing to its discounted valuation. [4:01]
• Discounted cash flow analysis suggests Microsoft is fairly valued while Apple is overvalued, leading to a clear preference for Microsoft as the better buy. [5:00]

DETAILED ANALYSIS

In 2026, Apple has outperformed Microsoft in terms of stock performance, raising questions among investors about which company represents the better investment opportunity. Both companies have experienced a deceleration in revenue growth over the past three years, but recent quarters have shown an acceleration, driven by Apple's successful next-generation iPhones and Microsoft's aggressive push into artificial intelligence. Microsoft’s largest AI customer is OpenAI, but this relationship has contributed to investor concerns and underperformance of Microsoft’s stock.

When comparing profitability, the analysis reveals a mixed picture. Apple demonstrates superior return on invested capital, whereas Microsoft leads in operating profit margin, which has surged to 45.6% in the latest trailing twelve months, up from 30% in 2016. Apple’s operating profit margin has also improved significantly, rising from 24.1% in 2020 to 32%.

Apple's capital-light approach—focusing on design and marketing while outsourcing manufacturing to partners like Taiwan Semiconductor—enables it to avoid the heavy capital expenditures typical in technology manufacturing. Microsoft, by contrast, benefits from high-margin software sales and lucrative AI-driven data center operations, a trend mirrored by Amazon’s consistently strong margins in the sector.

Valuation trends have diverged recently, with Apple now trading at a roughly 50% premium to Microsoft on a forward price-to-earnings basis (33 for Apple versus 22 for Microsoft). The primary driver of this gap is Microsoft’s exposure to OpenAI and the potential risk that AI advancements could erode Microsoft’s dominance in the Windows operating system. Even a slight increase in this risk is considered significant for Microsoft’s long-term prospects.

Discounted cash flow models reinforce this valuation disparity: Microsoft is trading near its intrinsic value ($425 market price vs. $418 intrinsic value), while Apple appears overvalued ($301 market price vs. $199 intrinsic value). Based on these factors, Microsoft is identified as the more attractive investment at current prices, with the analyst personally holding Microsoft stock and expressing a clear preference for it over Apple.

LINKS

• YouTube channel membership for exclusive perks and early access.
• Special offer for The Motley Fool Stock Advisor.
• Parkev Tatevosian's book on a six-step investing framework.
• Fiscal.ai investment research platform with a viewer discount.
• Webull investing platform sign-up with bonus shares.
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