MSFT vs. AAPL Stock: How Microsoft Surface Is killing Apple’s Mac

Windows Surface Studio Impacts MSFT vs. AAPL Stock BattleWindows Surface Studio Impacts MSFT vs. AAPL Stock Battle

One of the oldest and most heated rivalries in the tech world is about to add a whole new chapter. The Great Flame Wars of Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT) has had a healthy amount of fuel dumped all over it, with the introduction of the “Windows Surface Studio.”

That desktop computer is looking to challenge the Apple “Mac,” creating one of the most exciting hardware duels in recent memory.

Apple has, for a long time, put its focus on crafting both hardware and software to compliment each other, while Microsoft opted to focus on the software side of things. This fateful decision has led to what is perhaps the biggest and most enduring schism in the tech world: personal computer (PC) or Mac?

But Microsoft is looking to change that tried and true equation, which is good news for MSFT stock investors. Microsoft now wants consumers asking “Microsoft PC or Mac?”

The new Windows Surface Studio could very well be deemed a “Mac killer.” Remember those commercials that made out PC to be bland, milquetoast, and lifeless, while characterizing Apple Mac as stylish, hip, and creative? Microsoft has finally fired a salvo back, if a few decades late.

The Windows Surface Studio is a giant 28″ super-high-resolution desktop computer complete with touchscreen functionality, sixth-generation Intel Corporation (NASDAQ:INTC) processor options, and a dedicated graphics card. It’s being billed as the must-own tool for creative types, which is bad news for Apple Mac.

Apple has long held that Mac is preferable to PC when it comes to picture editing, sound design, art projects, etc. Apple owned that portion of the market, while Microsoft provided things like the “Office” suite that brought you such beloved applications like “Word,” “Excel,” and “PowerPoint,” among a host of other much-used programs. But Windows Surface Studio is looking to shake up that paradigm.

And it might be time that we got a little bit of a shakeup. Across the board, computer sales are down. Of the top five computer vendors, only Dell Technologies Inc (NYSE:DVMT) saw growth in 2016, with a 2.6% boost over the previous year. The industry as a whole saw a sales decline of 6.2% from 2015.

While AAPL stock is riding high currently, Mac sales were not a huge boon to the company. The company shipped 8.7% fewer Mac units in 2016 than it did in 2015. (Source: “Gartner Says 2016 Marked Fifth Consecutive Year of Worldwide PC Shipment Decline,” Gartner Inc, January 11, 2017.)

“The broad PC market has been static as technology improvements have not been sufficient to drive real market growth,” said Mikako Kitagawa, principal analyst at Gartner.

“There have been innovative form factors like 2-in-1s and thin and light notebooks, as well as technology improvements, such as longer battery life. This end of the market has grown fast, led by engaged PC users who put high priority on PCs. However, the market driven by PC enthusiasts is not big enough to drive overall market growth.” (Source: Ibid.)

There are a number of reasons that computer sales are down, and they are pretty much unavoidable. With the proliferation of smartphones and tablets, alternatives to computers have never been more plentiful. Not to mention that the prices of those devices are far lower than desktop computers. And, as mentioned above, the lack of strong innovation in the desktop world is not helping either.

But Windows Surface Studio is looking to be, not only Microsoft’s first desktop foray, but one that helps revitalize the business as a whole. The fact is that the MSFT vs. AAPL stock wars just added an interesting new dynamic, with Microsoft’s new product looking to muscle in on Apple sales.

The point is that consumers, for perhaps the first time ever, have a strong alternative to what Mac desktops offer. In fact, you could say that Microsoft went looking to beat Apple at its own game with Windows Surface Studio. And, judging from industry reaction to the new machine, they might have won.

How Windows Surface Studio Impacts Microsoft Stock Predictions

msft stock chart

Chart courtesy of StockCharts.com

Windows Surface Studio has great functionality, powerful hardware, a gorgeous display, modern processors, and tons of storage. But there’s a catch: it’s expensive. Really expensive.

The basic model will run you $2,999, the mid-range $3,499, and the most decked-out model $4,199. For a lot of people, shelling out that kind of cash on a budget-rending computer is a one-way ticket to financial ruination, at least in the short term. So we can’t expect it to sell like gangbusters, at least until (or if) a more affordable version becomes available.

But what it can do becomes popular enough that it creates a new revenue stream for Microsoft, which will naturally boost MSFT stock.

Microsoft stock has had a steady year so far, jumping by 4.39% since the beginning of 2017, but that could all change when Windows Surface Studio sales figures start impacting financial reports. After all, the machine was only released in late December 2016.

Microsoft in 2017 actually looks poised to be a powerhouse company on the stock market. There’s a ton of interest surrounding the company’s new desktop computer and, in the tech world, hype-trains like this often lead to strong sales.

The biggest barrier is, of course, the price. And the more expensive models won’t ship until May 15. So there’s a chance that the product won’t catch on, at least to mass-market consumers.

But the device is definitely turning some heads. As such, it could become a new craze in the tech community and contribute to a strong portfolio of products, which would be good for MSFT stock.

Forecasts show relative stagnation in computer hardware sales up until 2020, but the Windows Surface Studio could alter those predictions if it has a sizable impact in its first year of its release. (Source: “Shipment forecast of laptops, desktop PCs and tablets worldwide from 2010 to 2020 (in million units),” Statista, last accessed March 24, 2017.)

As far as the Microsoft stock predictions, I see more of the same for the company, with steady progress throughout the year. MSFT stock jumped 21.28% over the past 12 months. The company also has a 2.4% yield, which is a nice bonus for any investor looking to get involved in the stock.

Microsoft had a strong showing in 2016, generating $85.3 billion in revenue. Its total cash return to shareholders was $26.1 billion, up 12% from the previous fiscal year. (Source: “Annual Report 2016,” Microsoft Corporation, last accessed March 24, 2017.)

As previously mentioned, a lot of what Microsoft does takes place outside the realm of hardware. The company’s commercial cloud annualized revenue run rate, for instance, equaled more than $12.1 billion, up more than 50% compared to 2015.

“Windows 10” also saw itself become active on more than 400 million devices around the world, which is good enough for the fastest adoption rate of any prior windows release.

On the gaming side of things, Microsoft stock benefited from a 33% year-over-year growth in “Xbox Live” monthly active users, reaching 49 million.

All in all, between a strong showing in 2016 and the advent of the Windows Surface Studio, it’s looking like 2017 will be another year of growth for Microsoft.

Forecast for Apple and Microsoft in 2017

Apple stock chart

Chart courtesy of StockCharts.com

While Microsoft is looking to challenge Apple’s desktop market share, ultimately this will likely have little negative impact on Apple stock.

The “iPhone” is the much more powerful driver of AAPL stock, compared to Mac desktop sales. In fact, investors watching Apple stock closely are better served, not by focusing on Mac sales, but on the “iPhone 8.”

The next iteration of the globally popular iPhone is generating a vast amount of excitement for AAPL stock. Rumors abound as to just what the newest Apple smartphone will feature, but many point to the possibility of augmented reality (AR) and OLED screens.

The iPhone 8 release is almost certainly going to be Apple’s biggest play of 2017. With all anticipation building around the release, the next generation of the iPhone could sent Apple stock soaring.

Which is to say that there is definitely room for both Microsoft and Apple to succeed this year. While Windows Surface Studio is a shot across the bow towards Apple, it won’t impact the rival company’s bottom line, even if it does knock off a few Mac sales.

Apple stock is up 21.67% since the beginning of 2017, and the share prices have hit all-time highs this year. While there is reason to be skeptical over just how real these gains are—Apple has acquired a lot of debt and has helped boost its stock through buybacks—it is still one of the best tech stocks to buy in 2017. Though, again, there are some worrying signs, like the fact that the company had its first year-to-year decline in revenue in well over a decade.

Both companies have pedigrees and product lines that are hard to top. While these two have been rivals since the beginning of the computer age, that doesn’t mean the market isn’t big enough to bear both brands.

With Microsoft’s bold play, it is more a statement that the company is looking to challenge Apple’s image than a true threat to its business.

With both companies sporting strong technology, hardware and software, 2017 is going to be a good year for two of tech’s most revered companies. For Microsoft, Windows Surface Studio is just icing on an already tasty looking cake.