The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Summary:

The software-centric business of Microsoft makes it a safer long-term investment than Apple.

Unlike Apple, Microsoft has zero hardware exposure to China’s cold war with Trump. The smartphone business has reached peak status and is already on the decline.

While Apple is growing its Services business segment, Microsoft’s cloud-first Software-As-A-Service will always generate the bigger revenue/net income.

Like Apple and its iTunes iOS platform, Microsoft is also a giant beneficiary of the growing video games industry.

I Know First has a very bullish 12-month MSFT stock forecast.

I am now selling more Apple (AAPL) shares to increase my bet on Microsoft (MSFT). Sad but true, the software-driven business model of Microsoft makes it a better, safer investment than Apple. Apple became too iPhone-dependent (more than 60% of Apple comes from iPhone sales) and it is now suffering from the trouble in China and the emerging declining trend of the smartphone industry. People are now holding on to their smartphones longer. Apple and other phone vendors have a major headwind and headache from the slower upgrade cycle of smartphone buyers.

The safer long-term safety net of Microsoft’s software and cloud computing business segments is why its stock has notably higher valuation ratios than AAPL. It makes perfect sense for long-term investors (not traders) to re-align their money in buying more MSFT. Higher valuation ratios means investors trust MSFT more than AAPL.

Based on the chart below, Microsoft’s stock has higher P/B, P/E, and EV/EBITDA ratios than AAPL.

(Source: Seeking Alpha)

Microsoft Is Still King Of The Software Industry

Microsoft wrote-down its smartphone hardware business more than three years ago. It was because the genius Nadella realized that selling more Office 365 subscriptions and Azure monthly plans was far more profitable than selling sub-$200 Windows 10 Mobile phones.

Back then, Nadella already knew that surging sales of Office 365, Dynamics, Windows Server, and Azure cloud computing services would grow fast enough that Microsoft could afford to write down $7.6 billion. Google (GOOGL) has tried but failed to make a dent on Microsoft’s Office 365 and Desktop Office’s dominance in the consumer and enterprise market.

As per Statista’s data, Microsoft remains the immortal king of productivity and programming software. Yes, Microsoft sells its own brand of computers and search advertising business. However, I guesstimate that 85% of its quarterly revenue still comes from software-related products. Software products and services therefore contributes around 85% of Microsoft’s quarterly sales, or $24.71 billion.

(Source: Statista)

A software-focused company that can generate around $100 billion in annual sales is a buy and hold forever kind of investment.

Microsoft Has A Growing Search Engine And A Social Network

Its decades-long dominance of home and enterprise software sales helped Microsoft hoard a lot of cash. Microsoft buying LinkedIn and GitHub was just pocket money experience. LinkedIn is the world’s second-most lucrative social network. Microsoft is exploiting LinkedIn’s business-centric users to increase its advertising business. LinkedIn Learning and Lynda.com is also Microsoft’s cheap training platform to make sure Office 365, Microsoft Office, and its other software products remain the industry standard must-learn software skills for freelancers and office workers.

The long-term contribution of LinkedIn is very promising. It helps Microsoft train professionals to remain loyal to its software products. It also helps Microsoft attract more enterprise/corporate customers for its Office 365, Dynamics, and Azure products.

Bing Search is also gaining ground against Google search. Bing Search now touts 24.3% share in U.S. search engine usage. This is an important metric because the United States is still the biggest market for digital advertising. Bing Ads is now emerging as a worthy alternative to Google Search engine ads/AdWords. The more people who quits using the all-spying Google search engine, the better it is for the long-term future of Bing Search and Bing Ads.

Online commerce tracking company eMarketer estimated that Microsoft would only reap $6.4 billion as its share from 2019’s global digital ad spending of $327.28 billion. Advertising is therefore a big expansion opportunity for Microsoft. My fearless forecast is that Microsoft has clear potential to double its annual ad revenue within the next three years.

Microsoft’s device and platform-agnostic dissemination of its mobile apps like Outlook, Bing, and Skype, is helping it track the online habits and collect personal data of Android and iOS users. Three years from now, Microsoft will probably have a personal data library that could match Facebook’s (FB). By building up a massive library of personal data and people’s online habits can accelerate Microsoft’s growth as a major advertising services provider.

Last Thoughts

Another strong long-term tailwind for Microsoft is the unhampered double-digit growth of the video games industry. Microsoft has almost-zero involvement in mobile gaming. However, the Xbox hardware and games platform already made Microsoft the fourth-largest video games company in terms of revenue. Microsoft’s gaming division already generates more than $10 billion in annual revenue.

Statista estimated that last year’s gaming revenue was $70.56 billion. Microsoft’s share of that bonanza was $14.17%.

(Source: Statista)

I repeat, MSFT is a better long-term investment than Apple. I enumerated three strong tailwinds that will help Microsoft outpace the market cap/valuation of Apple. I Know First’s very bullish one-year market trend forecast score of 113.51 also reinforced my buy rating for MSFT. I Know First has a predictability score of 0.61 for MSFT. It means the AI stock-picking algorithm has an excellent record of accomplishment of correctly predicting the 12-month market return of MSFT. We should trust the wining MSFT track record of I Know First’s stock picking algorithm.

How to interpret this diagram.

Past I Know First Success with MSFT Stock Forecast

I Know First has been bullish on MSFT shares in past forecasts. On September 24, 2017, the I Know First algorithm issued a bullish 1 year forecast for MSFT with a signal of 48.68 and a predictability of 0.53, the algorithm successfully forecasted the movement of the MSFT share. After a year, MSFT shares rose by 53.55% in line with the I Know First algorithm’s forecast. See chart below.

This bullish forecast for MSFT was sent to I Know First subscribers on September 24, 2017.

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Please note-for trading decisions use the most recent forecast.