* Microsoft is now much smaller than Apple, but growing faster. * Microsoft is seeking the bulk of its new money from subscriptions, not product sales. * It may be time for Apple AND Microsoft in your portfolio.
For most of this century, the choice between Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) has been a no-brainer. You buy Apple. You leave Microsoft alone.
But under Satya Nadella, who became Microsoft CEO about a year ago, that may be changing. Suddenly it's Microsoft that has momentum, potential and opportunity, while Apple seems to be slowing down.
Take the top line. For the 12 months between fiscal 2013 and 2014, Apple grew sales from $170.9 billion to $182.8 billion. That's a gain of about 7%. For Microsoft, sales grew from $77.9 billion to $88.8 billion. That's a gain of 11%. Through the third quarter (Microsoft reports its Christmas quarter on Monday) the company was bringing 19.5% of its revenue to the net income line. Apple was bringing in 20%. Apple is now worth 70% more than Microsoft, $644 billion vs. $379 billion.
Now look at what's coming. From Apple, a new Phone, a new Watch, the headphones and music service it bought with Beats. From Microsoft, a downloaded Windows that updates like iOS, a holographic headset with software and a competitive Azure cloud. Remember, Microsoft is growing from a smaller base, with barely half of Apple's sales.
Apple hasn't always been the smart bet. In fact, if you had bought shares in both at their IPOs and just held on, your Microsoft would have made you twice as rich, although that includes Steve Jobs' long exile from the company. Since Jobs II, in 1997, Apple has flown while Microsoft has dawdled.
Still, as they say, Elvis has left the building and Vince Lombardi is not walking through that door. Today, you're comparing the offerings, strategies and financial wizardry of Tim Cook and Nadella.
Some of the smart money seems wise to all this. Microsoft is currently selling at a Price/Earnings multiple of 18.5, Apple at a P/E of 17.5. Over the last year, Apple stock has gained 46% while Microsoft is up "just" 29.5%.
The real difference between the two companies going forward lies in how they plan to get the bulk of their income. Apple is going to get it over-the-counter, in big chunks, and at retail. Microsoft wants to get most of its income through subscriptions, automatically, renting software or cloud services. When I last wrote about Apple, a few weeks ago, I noted that the big profits today lie in devices, not the cloud. Microsoft's devices - the Surface, Windows Phone, and the coming HoloLens - don't seem to measure up to what Apple offers.
But my spidey sense says your view on all this should be undergoing a subtle shift. We are no longer at the point where you buy either of these stocks as a speculation. Both now pay a solid dividend, with Microsoft's yielding 2.63% and Apple's 1.67%. Neither of these stocks is going to double overnight. Neither looks like a loser.
It just may be time to stop arguing about Apple or Microsoft. This may be the era of Apple and Microsoft.