Apple (AAPL) and Microsoft (MSFT), two titans of technology are having a stellar year, with stock prices up almost 20% so far in 2024. Despite practically both companies’ identical stock performance this year, how do the two 3-trillion dollar market cap companies stack up in terms of profit growth, predicted earnings growth, sales growth, long-term returns, and present valuations?

Stock Price Comparison

Over the 10 years, the Total Return, including dividends being reinvested has been higher for MSFT. While AAPL clocked 1004.5%, MSFT had a better run posting 1214.4%.

However, over the 5 years, the Total Return, including dividends being reinvested has been 379.8% for AAPL, while MSFT managed to generate only 258.3%.

Over the last 3-months, MSFT stock price went up by 10% while that of Apple shot 33% higher.

Tradequotex.com analyst Cory Mitchell. “Long-term stock performance is highly correlated to earnings growth. Rising earnings are correlated to higher stock prices. Expectations of higher future earnings are also correlated to higher stock prices.

When it is expected that a company will be able to generate higher earnings in the future, the stock is generally bid up in anticipation of that. Earnings expectations can lead to euphoric short-term stock rises, but unless the company delivers rising earnings, such stock gains are generally given back. Increasing sales is a secondary factor to consider, as rising earnings are best accompanied by rising revenues.”

AAPL versus MSFT: Earnings and Sales Growth

Here is how earnings and sales growth rates compare between Apple and Microsoft.

5-Year Average Annual Earnings Increase (past five years)

AAPL: 16.9% per year

MSFT: 17.9% per year

Forecasted 5-Year Average Annual Earnings Increase (analyst expectations for the next five years)

AAPL: 9.7% per year

MSFT: 15% per year

5-Year Average Annual Revenue Increase (last five years)

AAPL: 8% per year
MSFT: 13.4% per year

For recent and forecasted earnings and sales growth, Microsoft has the edge over Apple. Microsoft is expected to grow earnings by approximately 50% more per year than Apple (15% versus 10%) over the next half-decade, according to Mitchell.

Which is the Best Value: MSFT or AAPL

“Apple is trading at a Price/Earnings (P/E) of 36.3 and a forward P/E of 34.6, while Microsoft is trading at a P/E of 40.4 and a forward P/E of 38.1. On the surface, Apple looks like a better value, but recall that Microsoft is expected to have higher growth in the future,” says Mitchell.

PEG, or the P/E to Forward Growth ratio looks at expected earnings relative to the P/E ratio. The lower the value the better in terms of valuation.

Apple’s PEG is 4.1 and Microsoft’s is 2.6. This indicates that Microsoft is the better value.

Both companies are trading at very high valuations currently. A PEG value of 1 indicates the stock is trading near fair value. So both stocks are priced high for their expected growth, but Microsoft is priced more attractively than Apple.

Summary: Apple vs Microsoft

Both are great companies to own in a long-term portfolio and are expected to grow earnings in the future and have a strong track record of growing profits and sales in the past. Microsoft is priced more attractively than Apple currently, mainly because Microsoft is expected to grow earnings by a higher yearly percentage over the next five years relative to Apple.

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