Apple Stock Versus Microsoft Stock: Which Is the Better Buy Now?

Onetime competitors in personal computing led by big personalities and innovators Steve Jobs and Bill Gates, Apple and Microsoft are two diversified technology giants today. In fact, Apple stock and Microsoft stock are the top two stocks by market weight in the S&P 500.

Apple reported strong quarterly earnings in October, and management didn’t provide guidance for the coming quarter because of macroeconomic uncertainty. Morningstar expects Apple’s sales to slow in the face of currency headwinds and high inflation.

Meanwhile, Microsoft posted solid results, but macroeconomic pressures damped guidance. As a result, Morningstar cut its fair value estimate on Microsoft stock.

Given the headwinds both companies are facing and where their stocks trade today, investors may be asking: Is it time to buy Apple stock? Or is it time to buy Microsoft stock? Here’s how Apple and Microsoft scored on a few key investment metrics as of Nov. 7, 2022:

Apple Stock AAPL

• Price/Fair Value: 1.07
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Narrow
• Morningstar Capital Allocation Rating: Exemplary
  
  

Microsoft Stock MSFT

• Price/Fair Value: 0.69
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Wide
• Morningstar Capital Allocation Rating: Exemplary

Who wins this stock-versus-stock matchup? That depends on what Morningstar metrics matter most to an investor. Let’s take a deeper dive into a few of them.

Price/Fair Value Winner: Microsoft Stock

Morningstar’s analysts calculate a fair value estimate for each stock they cover. The fair value estimate represents the intrinsic value of a stock, based on how much cash we think the company can generate in the future. A stock’s price/fair value is simply its current market price divided by the fair value estimate. A stock trading below 1.0 is undervalued; a stock trading around 1.0 is fairly valued; and a stock trading above 1.0 is overvalued.

As of this writing, we think Microsoft’s stock is about 31% undervalued, while Apple’s stock is 7% overvalued. The winner from a price perspective is Microsoft stock, which is trading at a more attractive price today.

Watch: The Morningstar Fair Value Estimate

Uncertainty Winner: Microsoft Stock

The Morningstar Uncertainty Rating represents the predictability of the company’s future cash flows and, therefore, the level of certainty we have in our fair value estimate of a given company. Companies that enjoy sales predictability, modest operating and financial leverage, and limited exposure to contingent events carry lower Uncertainty Ratings; those with less-predictable sales, significant leverage, and significant exposure to contingent events carry higher Uncertainty Ratings.

Our analysts think Microsoft’s cash flow uncertainty is Medium, while Apple’s uncertainty is High. Microsoft wins for its lower Uncertainty Rating because we’re more confident in our fair value estimate of that stock.

Economic Moat Winner: Microsoft Stock

The Morningstar Economic Moat Rating represents a company's maintainable competitive advantage. A company with an economic moat can fend off competition and earn high returns on capital for many years to come. A company whose competitive advantages we expect to last more than 20 years has a wide moat, one that can fend off its rivals for 10 years has a narrow moat, while a firm with either no advantage or one that we think will quickly dissipate has no moat.

Our analysts think Microsoft has carved out a wide economic moat, while Apple has only built a narrow economic moat. Microsoft gets the win on this metric.

Watch: The Morningstar Economic Moat Rating

Capital Allocation Winner: Tie

The Morningstar Capital Allocation Rating represents our assessment of how well a company manages its balance sheet, investments, and shareholder distributions. Analysts assign each company one of three ratings—Exemplary, Standard, or Poor—based on their assessments of how well a management team provides shareholder returns. Adept corporate managers can make a good company even better.

Both Apple and Microsoft earn our top rating when it comes to capital allocation.

Which Is the Best Stock to Buy Today?

At the end of the day, the “winner” of any stock-versus-stock matchup from Morningstar’s perspective is the stock that’s trading at the largest discount to our fair value estimate after being adjusted for uncertainty. The Morningstar Rating for stocks encapsulates just that. Stocks rated 4 and 5 stars are undervalued after being adjusted for uncertainty, stocks rated 3 stars are fairly valued, and stocks rated 1 or 2 stars are overvalued after being adjusted for uncertainty.

Microsoft stock earns a 5-star rating as of this writing, while Apple stock earns a 3-star rating. Microsoft is the better stock to buy today from Morningstar’s perspective.

Watch: The Morningstar Rating for Stocks