The primary reason why Apple and Microsoft are losing to Amazon and Alphabet in stock prices is that Apple and Microsoft stocks don’t offer stock value regarding their growth rate. Apple and Microsoft stocks have been steadily declining, losing billions of dollars in their combined market capitalization over the past several months. This makes no sense to you because both Apple and Microsoft are stable, well-known, consistently profitable companies. On the other hand, Amazon and Alphabet are up-and-coming companies with a very little track record. So why have they seen so much success? And why has Apple and Microsoft stock lost so much value? Read on to find out more about this intriguing trend!
An Overview of How AAPL, MSFT, AMZN, and Alphabet Stock Prices Differ
Apple’s stock price has increased steadily over the past 12 months, hovering around the $180 mark. Meanwhile, Alphabet’s stocks have jumped from $660 per share to their current price of $1,055. While this sounds great for investors in these two companies, many wonder why AAPL and MSFT are much lower than AMZN and GOOGL.
Amazon is a traditional company that sells goods such as Kindle tablets, phone accessories, clothes, and more through its website. Google (GOOGL), on the other hand, is an internet search engine company with a diversified portfolio of subsidiaries operating on multiple levels of commercial activity, from wearable technology investments to life sciences startups. What could be causing this difference?
One possible reason for the underperformance of Apple and Microsoft stocks is that they don’t have a consumer-facing product or service that consumers want.
For example, the iPhone might be too expensive for some people or not appealing enough to entice others who aren’t looking to buy a smartphone.
Apple also doesn’t do well at creating new product categories outside of smartphones, which means they will continue to be subject to commoditization by cheaper producers in Asia. Another explanation is that some buyers don’t think these stocks offer good value relative to their potential growth prospects. Therefore, they opt for low-risk alternatives like Amazon and Alphabet, where there can be high growth opportunities and higher risk factors.
Some say that since Apple and Microsoft operate in mature markets, the opportunity for future profit generation is less likely. Considering how the S&P 500 index has outpaced both companies in recent years, it becomes clear why some traders believe they are poor buys right now.
A Potential Reason for these Differences Based on Fundamentals Alone
It could be that people are just pessimistic about the future of these companies, but there is another factor: stock buybacks. “The big difference is they’re not aggressively buying back shares,” CFRA Research Analyst Brian Hamilton told Yahoo Finance.
This means fewer investors’ demand on the market, which leads to a lower share price. “Apple is sitting at about $135 billion worth of cash, about $90 billion more than it’s got obligations for,” said Hamilton. So, you’ve got more than enough cash to do a major buyback.
However, Apple did announce its intention to return all foreign profits from Ireland and other overseas countries as part of tax reform legislation, a move many experts see as prepping for such a move.
In contrast, Microsoft only has $22 billion in cash while having $84 billion worth of obligations with no public plans for aggressive stock buybacks; they would need approval from the board first. Amazon has an even higher rate than Google or Facebook, with over $30 billion in cash with no debt or obligations.
How This Affects Investment Choices
Many people have bought stock in the tech giants of the past decade: Apple and Microsoft. But what does this mean for those who’ve invested? Perhaps you’re a bit scared by Google’s success with their research arm or Facebook’s success with Instagram.
You might feel at sea about how these fast-moving innovations will affect your assets. Some believe that the market is overestimating some risks, like low market share in China, while underestimating others, such as competition from Facebook and other social media platforms.
But regardless of which way you go, here are some questions to consider before deciding on stocks for your portfolio:
What do these stocks represent to me? How big is my risk tolerance? Do I have time to recover from any potential losses? What will happen if I lose money on this investment? Will I need my funds for other expenses soon after buying shares in one company? What are my goals for investing (short-term vs. long-term)? Which stocks do I trust most right now? When I think about the future, what scenarios do I want to prepare for? Am I looking for short-term gains, or am I interested in protecting my investments over time? It is advisable to have both types of stocks in your portfolio. That way, no matter which direction things go, you’ll always have something valuable.
Apple has been the world’s most valuable company by market capitalization for a while now, but that may end. The company is currently worth $659 billion less than its peak of $1.17 trillion. Steve Jobs, who was its CEO and one of the people behind the iPhone, convinced many of us at an early age that Apple products were great. But this promise only lasted a few years before customers turned their backs on them in favor of Android phones and products made by Google.
Now, with the introduction of the MacBook Pro Touch Bar that you can’t control without a trackpad or mouse, people wonder how long they’ll last. Steve Jobs would be furious about what happened to his company because he said: “Design is not just what it looks like and feels like. Design is how it works.”
What about Microsoft and Amazon? They’re still doing relatively well. MSFT is trading at $49.36, which makes it almost twice as expensive as AAPL stock ($27.75). They also have similar revenues and profits, so there doesn’t seem to be much difference between the two companies from a financial perspective.
When you consider their recent news stories, MSFT seems like the better buyout of these two stocks (aside from being more expensive). For example, both companies have had data breaches recently, but MSFT has admitted theirs publicly, whereas AAPL hasn’t! On top of that, AAPL stock fell 16% overnight after reporting lower-than-expected earnings, while MSFT rose 4%. So, what do you think?
Frequently Asked Questions
Did the Acquisition of Shazam Affect Apple?
In December of 2017, American multinational technology company Apple acquired the music identification app Shazam. TechCrunch reported that the purchase cost $400 million. This acquisition is just one of many taken by Apple from 2012-2018, according to Business Insider’s 11 Most Valuable Acquisitions list.
This purchase could have majorly impacted the stock prices of AAPL as it has created an unprecedented opportunity for Apple Music because it will now have access to millions of Shazam users.
The Technical Overlook
For starters, a few key things often go overlooked when viewing stocks of different companies.
- The first is market capitalization, which is the total value of a company’s shares of stock.
- The second is how liquid those shares are. Shares that are easy to sell on the market are liquid, while shares that are not as easily tradable tend to be more illiquid.
- Lastly, most people don’t know about supply versus demand.
The basic economic principle states that demand for goods will increase if their price goes down relative to other competing goods and vice versa. As such, this could contribute to the differing valuations of AAPL and MSFT relative to AMZN and GOOGL.
Apple’s stock is losing power because the company failed to capitalize on the rising trend of internet-connected devices. Shareholders are worried that investors will become less interested if a newer, more innovative device doesn’t come out soon.
Amazon’s stock price continues to soar as it has successfully avoided entering into a large share of the marketplace with big box retailers like Walmart and Target. They also do well with their Prime Memberships since consumers can opt for free or low-cost shipping with no minimums when buying from their website.
Meanwhile, Microsoft continues dropping despite recent success with cloud computing and AI services due to the current climate at IBM. After all, IBM holds about 16% of its shares (or about $6 billion worth), making them a significant investor.
However, IBM’s revenue grew by just 1% this past quarter while its profit fell by 20%. In comparison, the tech giant reported an 8% increase in revenue and an 11% increase in profit during the same period.
Alphabet is successful because it invested heavily in the hardware market with smartphones and tablets. The former allows Google to put ads everywhere without relying on third parties, while the latter expands its reach across multiple platforms.
Another major advantage of Android OS is that it’s cheaper than iOS. As such, developers have a wider audience base when developing apps and games for Android OS devices than Apple products, thus giving them access to more potential customers and higher profits. For example, there are over 2 million apps in Google Play Store vs. 600 thousand in iTunes App Store.