Prediction: Within 18 Months, Microsoft Will Be More Valuable Than Apple

Microsoft (NASDAQ: MSFT) and Apple (NASDAQ: AAPL) have been rivals for decades. Not only are they competing businesses, but their high valuations frequently make them among the most valuable companies in the world. Both are in the trillion-dollar club, with market caps well in excess of $1 trillion.

Currently, Apple is the more valuable of the two stocks, with a market cap of $4.5 trillion versus $3.6 trillion for Microsoft. But within the next 18 months, I believe Microsoft will surpass Apple and be the more valuable of the two. Here's why.

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Microsoft is in a better position to benefit from opportunities related to artificial intelligence

Artificial intelligence (AI) is a major growth opportunity in tech these days, and yet, neither of these tech companies is truly taking off because of it. Apple has been slow to roll out AI features on its iPhones, and Microsoft's Copilot assistant doesn't exactly have the best reputation.

But of the two, Microsoft looks to be in a better position. I've used Copilot regularly, and Microsoft lets users choose which chatbot to use for their queries. And Copilot can help users with day-to-day queries related to spreadsheets and Word documents, making the cost of upgrading to an AI-powered plan justifiable for businesses. It's just a matter of time before customers come around to that realization, but I'm confident that will happen. And when it does, Microsoft's growth rate could take off, and so too will the stock.

Apple's stock is highly overvalued, and Microsoft still possesses some intriguing upside

Apple's valuation is 25% higher than Microsoft's. It's not a huge gap, and one that I think will shrink and eventually disappear in the near future. Investors have piled into Apple as a safe-haven stock of late, but at 35 times earnings, it looks overpriced given the often sluggish and modest growth its business generates. Microsoft, by comparison, trading at 27 times its earnings, looks more reasonably valued and has been rising recently after posting strong quarterly results, and it could still have room to rise even higher.

Within the next 18 months, perhaps a whole lot sooner, I predict Microsoft will have a higher valuation than Apple. It has more upside and some exciting growth opportunities related to AI, while Apple may be due for a pullback given its inflated valuation. While both stocks can make for good long-term investments, Microsoft looks to be the far better buy right now.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Microsoft. The Motley Fool has a disclosure policy.