Microsoft's larger business size, its way better growth, and its more attractive fundamentals do, not surprisingly, translate into a way higher valuation for Microsoft. This does translate into way better returns on capital - Microsoft generates a massive 20% return on assets and a 30%+ return on capital employed, while IBM's returns on capital are way lower. Microsoft's gross margins are around 1.5x as high as those of IBM, while its operating margins are ~4x as high as those of IBM. Microsoft is not only growing way faster than IBM, but its business is also way more profitable: IBM, meanwhile, generated revenues of around $70 billion in the same time frame, which was down 10% over the last five years. Microsoft generated revenues of $170 billion over the last year, up around 80% over the last five years. This translates into a weaker growth rate, and also weaker fundamentals. IBM's artificial intelligence offering Watson can be seen as a pretty high-tech solution, but apart from that, IBM is more of an "old tech" company compared to Microsoft. to a wide range of customers across the globe. IBM, on the other hand, has a large business services segment that offers solutions such as outsourcing, business consulting, etc. This includes its operating systems, Office 365, but also things like hardware (Surface) and gaming, via its Xbox franchise. Microsoft does, on top of its cloud offering Azure, have a wide range of other businesses. are other points where IBM and Microsoft are different from each other. This includes other business franchises of the two companies, but doesn't end there - management, growth, fundamentals, balance sheet strength, etc. What Are The Differences Between IBM And Microsoft?īoth companies have significant cloud computing business units, but apart from that, there are vast differences. Both stocks have around 10% upside towards the respective analyst consensus price target, thus there are no vast differences when it comes to Wall Street-ascribed upside potential. It was seen as an "old tech" stock for some time as well, but it is not a growth cloud and mobile-first software player, which is why the market rewards it with an above-average earnings multiple of 34. IBM is mostly seen as "old tech" with low growth rates and does thus trade at a pretty low valuation of just 13x forward earnings, while Microsoft has seen its public image change over the last decade. Over the last four years, Microsoft has seen its shares rise by more than 400% to more than $300, while IBM has seen its shares decline by a little over 10% in the same time frame. Microsoft has, on the back of investor enthusiasm which allowed for multiple expansion, strong growth from Azure, and its success with Office 365 had a couple of great years. Both companies have significant cloud computing exposure, and due to reader interest, we'll pitch these two against each other to find out what stock might be more suitable for what type of investor. IBM ( NYSE: IBM), for example, has not been a strong investment in recent years, at least compared to the likes of Microsoft ( NASDAQ: MSFT ). The tech industry has been an outperforming sector for years, but not all companies in this space have a strong track record. PressureUA/iStock Editorial via Getty Images Article Thesis
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