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Tech ETFs Faceoff: Apple Vs Microsoft

The technology sector has been the clear leader of the 2024 market rally so far, driven by the artificial intelligence (AI) craze, hopes of rate cuts and the rising share of the "Magnificent Seven."  

The "Magnificent Seven" is the biggest engine of growth for the technology sector. In particular, Apple AAPL and Microsoft MSFT are racing for the spot of the most valuable company. Last week, Apple reclaimed the most valuable company title, edging out Microsoft, but is unable to sustain the momentum. The iPhone maker currently has a market cap of $3.26 trillion, whereas the software maker boasts $3.29 trillion.

Apple

Apple, which was way behind its competitors in adopting AI, is finally catching up following the launch of the latest AI features at its long-anticipated Worldwide Developers Conference. The introduction of numerous AI-powered features is expected to kickstart the next upgrade cycle, enhancing the company's performance and restoring investor confidence in Apple (read: Apple Jumps on the AI Bandwagon: ETFs to Buy).

The iPhone maker unveiled a brand-new AI feature called Apple Intelligence for iPhones, iPads and Macs. The technology will help summarize text, create original images and retrieve the most relevant data when users need it. Apple announced a partnership with ChatGPT-maker OpenAI, which provides customers access to ChatGPT via Siri at no extra cost.

Apple reported robust second-quarter fiscal 2024 results, beating both earnings and revenue estimates. The tech giant unveiled the largest buyback in the company's history and lifted its dividend payment.

Microsoft

The world's largest software maker also reported strong third-quarter fiscal 2024 results, beating earnings and revenue estimates, driven by the strong demand for cloud and artificial intelligence offerings.

Microsoft has invested billions of dollars into AI in a bid to turbocharge its growth, particularly its cloud computing services, and is now reaping the fruits. About 7% of the increase in Azure revenues came from AI. Microsoft CEO Satya Nadella said on the last reported quarter’s earnings call that 65% of Fortune 500 companies are using the Azure service that delivers OpenAI's technology to businesses. Demand for generative AI will continue to fuel Microsoft's cloud business.

Microsoft is now emphasizing AI transformation through its new offerings like Microsoft Copilot. “Microsoft Copilot and Copilot stack are orchestrating a new era of AI transformation, driving better business outcomes across every role and industry," Nadella added.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Apple Vs. Microsoft

Microsoft is leading the way this year, having gained 17.7% versus Apple’s rise of 10.4%. Both stocks currently have a Zacks Rank #3 (Hold) and a Momentum Score of A, along with a solid Zacks Industry Rank in the top 23%.

Though Microsoft has a Growth Score of B, meaning that it is primed for strong growth, Apple looks relatively cheaper at the current levels as it is trading at a P/E ratio of 32.30 versus 37.60 for Microsoft. Apple’s earnings are expected to grow 7.3% for the fiscal year (ending Sep 2024), lower than the industry average of 30.68%. However, its revenues will likely increase 0.4%, much higher than the industry’s growth of 0.03% (read: Can Dow Jones ETFs Soar Even Higher After Hitting 40K Mark?).

Zacks Investment Research
Zacks Investment Research


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Apple currently has an average brokerage recommendation (ABR) of 1.75, up from 1.82 a month ago, made by 30 brokerage firms. Of those deriving the current ABR, 18 are Strong Buy and three are Buy. Strong Buy and Buy, respectively, account for 60% and 10% of all recommendations. A month ago, Strong Buy made up 56.67%, whereas Buy represented 10%.

Meanwhile, Microsoft has an ABR of 1.13 made by 39 brokerage firms. Of these deriving the current ABR, 35 are Strong Buy and three are Buy. Strong Buy and Buy, respectively, account for 89.74% and 7.69% of all recommendations. A month ago, Strong Buy made up 89.47%, whereas Buy represented 7.89%. The company’s earnings and revenues are estimated to grow 19.98% and 15.33%, respectively, for the current fiscal year (ending June 2024), much higher than the average industry growth of 11.50% and 6.67%.

ETFs to Bet On

Based on the above discussion, Apple and Microsoft are in a tough battle and investors should include both stocks in their portfolios to tap growth. Good tidings are in the cards for Apple, given its cheap valuation, strong ABR and new AI innovations. Then again, Microsoft is poised for above-average growth, given its solid earnings and growth estimates (see: all the Technology ETFs here).

As such, investors seeking to invest in both companies at the same time could look at Select Sector SPDR Technology ETF XLK, MSCI Information Technology Index ETF FTEC, Vanguard Information Technology ETF VGT and iShares Dow Jones US Technology ETF IYW. XLK has the largest 44.1% share in both AAPL and MSFT, followed by 33.7% for IYW, 32.8% for FTEC and 32.6% for VGT. All four ETFs sport a Zacks ETF Rank #1 (Strong Buy) and have been hitting new highs lately.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Apple Inc. (AAPL) : Free Stock Analysis Report

Microsoft Corporation (MSFT) : Free Stock Analysis Report

Technology Select Sector SPDR ETF (XLK): ETF Research Reports

Fidelity MSCI Information Technology Index ETF (FTEC): ETF Research Reports

iShares U.S. Technology ETF (IYW): ETF Research Reports

Vanguard Information Technology ETF (VGT): ETF Research Reports

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Zacks Investment Research