Major inflection points occur regularly in history, politics and even the stock market. A prime example of this is the current presidential election. A month ago, the overwhelming consensus was that President Obama was cruising to re-election. A month later, he is tied or behind in the polls (depending on which poll you consult) for the popular vote and the election is likely to be a nail-biter. Most pundits point to the first debate on October 3rd as the inflection point in this unexpected turn of events. However, signs of a change of direction were apparent in hindsight weeks before (The 09/11 Benghazi debacle, Romney's lead with independent voters, the amount of funds the challenger was continuing to be able to raise … etc.).
A similar inflection point seems to be developing among two tech stalwarts, Apple (AAPL) and Microsoft (MSFT). Apple has done little to no wrong over the last few years and has had a huge run to make it the world's most valuable company by market capitalization. Microsoft on the other hand has been dead money for over a decade despite a slow, consistent rise in earnings and revenues over that time span. However, over the last week or so, the tide seems to be turning (See Chart below).
Apple which could do no wrong for half a decade is starting to get remarkably bad press.
- First, it missed earnings estimates both on the top and the bottom line.
- It also had a major glitch with the new mapping software in its iPhone5 launch which drew much derision and led to a high profile management departure as well.
- The tech juggernaut, which has been lauded for years for doing everything right, now has analysts questioning whether it has lost its "vision" and "mojo."
- Finally, major pundits like Doug Kass are opining that the company's best days are behind it and the company has grown too large to manage.
Microsoft, on the other hand, after years of underperforming and being referenced consistently as a tech company that has lost its way, is drawing major praise from unexpected sources.
- Its new Surface tablet is garnering a bevy of solid reviews, including by well-respected and followed Walt Mossberg.
- This critical product line is gaining good traction with the all-important app developer community and 46 of the top 50 selling apps available for the device at launch. Although it is has a long way to go before it has the same supporting ecosystem of Apple or Google (GOOG), it seems like it off to a good start.
- It also has other big opportunities, including being a major player in managing "Big Data" which the NY Times heaped a good deal of praise on in a profile piece on the company in yesterday's paper.
- In addition, its new Windows 8 operating system is off to an impressive start with over 4mm copies sold in its first three days of release. Although that is just 1% to the company's goal of 400mm in unit sales, it looks like a solid launch.
- Some pundits are even projecting Microsoft will win this war of attrition which is something one has not seen in some time.
Bottom line: I own and hold both stocks in my portfolio. However, with Microsoft's momentum, new product launches, dividend and cheap valuation (Under 7x forward earnings after subtracting its $67B of cash and short-term investments on its balance sheet); any new money I allocate to this sector on dips will be going into Microsoft, not Apple.