Microsoft is poised to overtake Apple as the largest U.S. company by market capitalization. – MarketWatch/Getty Images
Apple Inc. has long been the most valuable U.S. company, but Microsoft Corp. seems poised to overtake it. A look back at the companies’ financial performance and a look ahead at expected revenue and profits make the case that Apple is no longer a growth stock and that Microsoft is the better long-term investment.
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At the close on Friday, Apple AAPL remained in the top spot with a market capitalization of $2.892 trillion, just ahead of Microsoft MSFT at $2.887 trillion. Apple’s stack was down 3.4% for 2024, while Microsoft was up 3.3% for the new year.
Here’s a quick comparison of total returns (with dividends reinvested) for the stocks, and for the SPDR S&P 500 ETF Trust SPY, to show how the companies’ forward price-to-earnings valuations have moved, through the close on Thursday:
Company or ETF
Ticker
Five-year total return
Forward P/E
Forward P/E five years ago
Change in P/E valuation
Apple Inc.
AAPL
408%
27.7
12.3
125%
Microsoft Corp.
MSFT
294%
31.7
21.6
46%
SPDR S&P 500 ETF Trust
SPY
100%
19.5
15.1
30%
Source: FactSet
Apple’s forward P/E (price divided by rolling 12-month earnings-per-share estimates among analysts polled by FactSet) has more than doubled over the past five years. The entire stock market is more expensive than it was, as you can see with SPY’s valuation climbing 30%. Microsoft’s valuation on this basis has grown 46%, not only because its stock hasn’t performed as well as Apple’s stock has, but because Microsoft has grown its earnings per share much more quickly.
Looking back and looking ahead
Here’s a look at compound annual growth rates (CAGR) for the companies’ sales and earnings per share over the past five years and the S&P 500 SPX. These are calendar-year numbers, adjusted by FactSet because some companies, including Apple, have fiscal years that don’t match the calendar. The numbers for 2023 are based on the first three quarters’ results and estimates for the fourth quarter. The table also includes projected CAGR for sales and earnings per share from 2023 through 2025.
Company or index
Estimated five-year sales CAGR through 2023
Estimated five-year EPS CAGR though 2023
Expected two-year sales CAGR through 2025
Expected two-year EPS CAGR through 2025
Apple Inc.
8.1%
15.4%
4.9%
8.2%
Microsoft Corp.
14.0%
19.4%
14.3%
16.2%
S&P 500
7.0%
7.2%
5.3%
12.3%
Source: FactSet
Over the past five years, Apple’s sales and earnings per share have grown at a faster pace than those of the S&P 500, but Microsoft has grown more quickly.
Looking ahead, the estimates point to a pace of sales growth for Apple that will trail that of the index and lag far behind Microsoft. Apple is also expected to increase earnings at a slowing pace, again way behind Microsoft and even the index.
A rapid pace of growth justifies a premium share price, so it makes sense that Microsoft now trades at a higher forward P/E than Apple does. But Apple’s premium to the full S&P 500 is difficult to justify, based on these numbers.
Analysts working for brokerage firms seem to agree. Here is a summary of ratings and price targets for Apple and Microsoft:
Company
Ticker
Share “buy” ratings
Share neutral ratings
Share “sell” ratings
Jan. 11 price
Consensus price target
Implied 12-month upside potential
Apple Inc.
AAPL
57%
34%
9%
$185.59
$197.58
6%
Microsoft Corp.
MSFT
90%
10%
0%
$384.63
$420.91
9%
Source: FactSet
Following a stellar 2023 for both stocks, expectations for share price increases over the next year are modest. But the analysts favor Microsoft by a large margin.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.
The S&P/TSX composite index was up 0.05 of a point at 24,224.95.
In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.
The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.
The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.
The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.
This report by The Canadian Press was first published Oct. 10, 2024.
