Some people think that investing in AAPL and MSFT is not a good idea as they are too big and hence there is a limit to how much more they can grow. I am glad that I did not buy into that idea and initiated a position in AAPL 5 years ago and MSFT 3 years ago.
Not only did they not disappoint with their growth, both titans also bought back substantial amount of shares which led to higher EPS growth. And that has translated to appreciation of their share prices over the years.
After a sluggish FY2023, they are back on their growth track. Both reported strong quarterly results recently and MSFT’s number definitely impresses.
Apple
Despite the flattish revenue, AAPL’s quarterly EPS is up by 16% and hit an all time high of $2.18. I decided to invest in AAPL then as I believe its services segment which is recurring, will continue to grow. And that has been the bright spark for the past few years! If it is another flattish year for their products segment, then the services segment should account for more than 30% of their revenue for the current financial year.
I have no doubt that Apple’s installed base and services revenue will continue to increase. Being a convert since 15 years ago, I have not looked back. While I do agree its products no longer have the wow factor like before, I am still very satisfied with my experience using them. So it’s very likely I will continue to contribute to their services revenue for a long time.
Beyond services, can Apple grow further?
Based on media reports, Vision Pro received very positive response since its launch on 2 Feb. While its contribution is probably negligible in the short term, it does look like its potential could be much larger than expected. What’s interesting is enterprises such as Walmart has shown interest in using it. That will be a huge boost if it really happens and there might be ripple effect too.
The last interesting snippet comes from Tim Cook’s remarks that they will be sharing their work on AI later this year. It is unlikely that it will be at any level near that of MSFT, GOOG, META, but it is still nice to hear that they are working on it. Looking forward to see their spin on it.
Microsoft
I have no Windows based machines at home and I have ditched the use of Office suite for many years. Google Docs and Sheets have been my default for many years and I have switched to Canva for presentation.
What is more telling though is that my students are on them too since a few years ago. So you are going to have a generation that grows up without using Windows based machines and Office. What is the likelihood that they will switch when they are working?
Having said that, my personal experience doesn’t reflect the reality on the ground. Looking at the above numbers, many don’t agree with me and still like MSFT products!
So even though I do not use any of their products (I also have no Xbox and just deleted my LinkedIn account last year), it is definitely a company worth investing, especially under the current CEO Satya Nadella.
The buzz in the past year must be its partnership with OpenAI. That seems to have created a huge wave of possible innovations and growth in the coming years. I am still grappling with its potential impact and wondering if this time will be different?
AI is definitely not new and there were already talks about investing in AI related counters 6 years ago.
“A look back at the history of the technology shows that the idea is hardly new. For decades, there have been periods of huge funding and excitement around the technology…only to see optimism fizzle out“
– The Motley Fool Singapore AI Dossier
During that period of time, I happened to read the following two books and remembered liking what the authors shared then.
I could not really recall the actual content but the idea of ever increasing computing power is probably mentioned in one of them, and how we might have reached the tipping point that allows innovation that wasn’t possible before, possible now.
Hmm, I don’t quite trust my memory, and for one reason or another, I had disposed both books! Oh well, Iooks like I need to check if they are available in library, so that I can re-read them.
Back to MSFT with AI. This is definitely a space in which the company can grow into. Hopefully with their talents and financial muscles, they can bring about innovations that have positive impact to the society.
Apple and Microsoft are titans but there is still room for them to grow further. I am not expecting high growth rate but anything in the teens is already very impressive. Again, don’t expect linear growth. There will be flattish years and even decline in certain year, but hold them long enough and the likelihood of good capital gain increases.
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