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Apple Stock vs. Microsoft Stock: Investors Are Asking the Wrong Question

Will Ashworth

The Microsoft (NASDAQ:MSFT) versus Apple (NASDAQ:AAPL) is really a little misguided. If I could only own two tech companies, Apple stock and Microsoft stock would be a pretty potent combination. 

Over the past five years, a $10,000 investment in both stocks would have netted you $56,070, or an annualized total return of 22.9%, 876 basis points higher than the S&P 500.

I’m not sure why investors feel the need to pick one over the other. It seems to me that if you can afford to own both stocks, you absolutely should, and that includes Warren Buffett.

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A New Microsoft

Like the ads that said, “This isn’t your father’s Oldsmobile,” Microsoft isn’t the same company it was before CEO Satya Nadella took the reins in February 2014. Ian Sherr and Connie Guglielmo wrote a great article in 2018 about the transformation. You should read it. It says, in part:

“One of the things that happens when you’re super successful is you sort of sometimes lose touch with what made you successful in the first place,” Nadella told the authors while discussing the impetus for Microsoft’s annual three-day hackathon. “I wanted to go back to the very genesis of this company: What is that sense of purpose and drive that made us successful? What was the culture that may have been there in the very beginning or in the times when we were able to achieve that success?  How do we really capture it?”

Brilliant.

It’s this kind of thinking that generates ads like the one that appeared in the Super Bowl, the Xbox ad featuring its Adaptive Controller.

I don’t have kids, but you don’t need to relish the pure joy of the message, “When everybody plays, we all win.”

To me, this exemplifies how far Nadella has brought Microsoft. It’s an emotionally mature ad from an emotionally intelligent company which is excellent news if you own Microsoft stock.

Of course, it makes sense that Apple didn’t run an ad given the Microsoft Surface is the official tablet of the NFL and the official laptop of Super Bowl LIII. Why try to compete?

No longer is Microsoft a boring software company. It’s a tech company focused on providing solutions to real problems. There’s a big difference. 

I Wasn’t a Fan

I must admit that I wasn’t originally a fan of Nadella’s. Here’s what I wrote in July 2017:

“Microsoft shareholders have done well since Nadella took over in February 2014. However, MSFT could have done equally as well paying Nadella and the rest of the management team a fraction of their annual compensation.

“Is Satya Nadella overpaid? You better believe it.”

Here’s what I said about Microsoft in November:

“Although I’ve been critical about Nadella’s pay in the past , there’s no way you can deny that the changes he’s made at Microsoft have returned it to growth mode after several years of stagnating revenues.

“A CEO is paid to improve the results of his or her company, and Nadella’s done just that.”

It’s not that I condone excessive CEO compensation, but at least he’s transformed Microsoft into a company that isn’t sleepwalking through its business day. Not many CEOs have the power to do this.

Tim Cook Is Great for Apple Stock

For me, Tim Cook is an excellent CEO because of the things he hasn’t done, rather than the stuff he has; a reality that’s reflected in the gains for Apple stock.

Analysts continue to push for him to open the Apple cash vault to make a big acquisition such as buying Netflix (NASDAQ:NFLX) to solidify its streaming business. Of course, Netflix would cost Tim Cook close to $200 billion, not a small sum, even for Apple.

It’s possible that Cook might succumb to the pleas, but I doubt it.

I see Apple fully committed to continuing to develop products and services internally with bolt-on acquisitions like Shazam to fill in the gaps where necessary.

Not being born with a silver spoon certainly helps minimize the need to make splashy acquisitions like the $34 billion purchase of Red Hat (NYSE:RHT) by IBM (NYSE:IBM).

Apple’s got plenty going on in Cupertino to keep it busy without having to spend significant hours integrating a massive acquisition. It might not be a player in streaming right now, but I have no doubt it will be five years from now.

The Bottom Line on Apple Stock

If you’re going to buy Apple stock, I believe you also should buy Microsoft, and vice versa.

The two companies might have been enemies at one time. Today, I think they’re respectful competitors.

The right question for investors to ask: Why It Makes Sense to Own Both Stocks?

As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

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