Why is Apple Stock Down in 2018 While Microsoft Has Soared?

TL;DR

Apple and Microsoft's competition, financial strategies, and potential future growth compared.

Transcript

Dylan Lewis: The story that's been dominating a lot of headlines recently is, Apple was the largest company, the first one to hit $1 trillion. Now, Microsoft and Apple are jockeying for that title. Two very different paths to getting to that point. Evan Niu: Right. They're both right around $850 billion in market cap. They're comparable. Whoever's ... Read More

Key Insights

• 👲 Microsoft and Apple are closely competing for the top position in market cap, with differing growth strategies.
• 😶‍🌫️ Satya Nadella's leadership and cloud-based business models have been pivotal for Microsoft's growth.
• ❓ Apple's reliance on hardware sales and recent setbacks have impacted its valuation and growth trajectory.
• 🥺 Microsoft's as-a-service approach and software focus have led to higher margins and steady cash flows.
• ✋ Valuations of Microsoft and Apple differ significantly due to business models, with Microsoft trading at a higher earnings multiple.
• 😶‍🌫️ Microsoft's cloud infrastructure and enterprise services offer growth potential that Apple's hardware-driven revenue streams lack.
• 💪 Microsoft's strong enterprise presence may provide more stability in the event of a recession compared to Apple.

Questions & Answers

Q: How has Microsoft's shift to a subscription model impacted its growth compared to Apple?

Microsoft's move to as-a-service business model with Office 365 has provided steady cash flows and high margins, contributing to consistent growth and higher valuations.

Q: What separates Microsoft and Apple in terms of business models and valuations?

Microsoft's software focus and high-margin subscriptions have led to over 60% gross margins, contrasting Apple's lower margins due to a hardware-driven business.

Q: How does Microsoft's market position in cloud services give it an edge over Apple?

Microsoft's strong presence in cloud infrastructure and enterprise markets offers growth opportunities that Apple, with its hardware-dependent model, does not have access to.

Q: In the face of a potential recession, which company, Apple or Microsoft, might fare better?

Microsoft's diversified business model and strong foothold in enterprise services could be more resilient to a recession compared to Apple's hardware-centric revenue streams.

Summary & Key Takeaways

• Apple and Microsoft are both close to $850 billion in market cap, a position they haven't been in since 2010.

• Microsoft has been steadily growing due to CEO Satya Nadella's cloud strategies, while Apple has faced setbacks due to iPhone production cuts.

• Microsoft's as-a-service model and software focus have led to higher valuations compared to Apple's hardware-reliant business.