Investing in big-name stocks like Apple [NASDAQ: AAPL] or Microsoft [NASDAQ: MSFT] may seem like a no-brainer. At different times, both of these companies have reached a market capitalization of a trillion dollars – That’s more than the GDP of either Switzerland, Sweden, or Belgium.
With that type of money, buying stock in the future of a tech titan seems smart, but investing in these companies does come with pros and cons. Take the time to educate yourself about any stock before you invest, including the big-name ones.
The Pros and Cons of Investing in Tech Titans
When you buy a share in any stock, you are making a bet that the company will be able to keep generating returns. Exactly how much of a return of investment you expect will depend on your interpretation of the company’s revenue streams and market opportunities. In the case of tech titans, you are effectively betting that their products and services will continue to be successful and that their market share or number of users will grow.
The thing is that tech titan stocks are huge, and the prospect of them growing too much bigger is not as (seemingly) inevitable as it was. Many people already have computers. To generate more revenue, big tech companies need to provide something different by evolving or expanding their offerings.
Software and cloud-based applications are one possibility, as are smartphones and tablets, but where does it end and is there enough room for growth that you will be able to see the type of return on investment want?
At the same time, you need to keep in mind that these companies are not the only ones competing in the tech space. Other companies many phones and computers, other businesses sell services. Some are enormous, such as Alphabet [NASDAQ: GOOGL] and Amazon [NASDAQ: AMZN] while others are major players in their own little niche, like Oracle [NYSE: ORCL] or Pandora.
Is Apple Stock A Buy?
Apple [NASDAQ: AAPL] is one of the most significant holdings in the Berkshire Hathaway portfolio. With almost $50 billion in shares, Warren Buffett’s firm is Apple’s third largest institutional investor – a position that is prominent enough to provoke the company to create a game just for the famous investor (It’s called “Warren Buffett’s Paper Wizard“).
But even the confidence of the world’s most popular investor is not enough. You never want to make a blind investment.
Here are some of the reasons to be cautious about investing in Apple:
1. Economy: Apple is heavily influenced by economic conditions.
Aside from the premium its products command and the way that a poor economy or job situation could compound any issue there, the company is also affected by the economy in other places.
The majority of Apple’s revenue comes from outside of the United States as does many of its products, components, etc. If a poor economy limited one of those assets, the company would feel it.
2. Competition: Samsung in particular is a serious threat
Apple [NASDAQ: AAPL] has, so far, been able to compete by introducing new and novel products, but there are businesses coming up with new things all the time, most notably Samsung.
Apple has to work hard to maintain its edge and ensure that it stays true to what customers expect from its brand in terms of features, quality, and design or it could lose some of them.
To do this, Apple has purchased dozens of companies over the past 20 years, absorbing them for their respective software or hardware developments.
3. Intellectual Property
Some of Apple’s developments have resulted in patents and in other cases, Apple has come into some issues regarding intellectual property, such as a ruling that Apple infringed on certain patents owned by Qualcomm.
4. Third-party Content
Apple [NASDAQ: AAPL] has many contracts in place that allow its users to run third-party software and access third-party content.
From the latest music or movies to certain apps and software, Apple has to be able to work with those parties in order to provide what its customers want.
Should You Invest in Microsoft?
Microsoft also faces certain risk factors.
Like Apple, the company needs to be able to attract or access third-party content and it could be impacted by the economy or competition. However, Microsoft has a unique struggle – ecosystems.
One of the ways that Microsoft [NASDAQ: MSFT] has competed for years is by establishing a platform-ecosystem.
Essentially, this means that because everything runs on Windows, people will need computers than can run on Windows and software that integrates with the system.
These vertically-integrated systems are good for effectively trapping customers into one OS – Are you Mac or PC? – but times are changing.
Cloud-based services have eroded some of that and Microsoft [NASDAQ: MSFT] needs to figure out new ways to compete.
One strategy the company announced recently is to team up with Apple to offer iCloud for Windows, but time will see whether Microsoft can compete as tech evolves.
Acquisitions and investments in popular platforms, virtual reality, AI, and blockchain are a start, but not a complete picture.
Apple Vs Microsoft Stock: The Bottom Line
Right now, Apple [NASDAQ: AAPL] has a market cap of $899 billion and a forward PE of 15.40. It is currently priced at $195.13 on a 52-week range of $142 to $233.47, suggesting the stock price is somewhat volatile. With these numbers, Apple looks more like a value stock.
In comparison, Microsoft is priced at $132.22 per share and has a 52-week range of $93.96 to $134.24. Its market cap is $1.01 trillion, and it is priced at 25.87 times its future earnings.
That said, betting on either company really comes down to how well you think each one will leverage its strengths, overcome its weaknesses, and take advantage of its opportunities. However, keep in mind that you don’t have choose only one – or one at all.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.