Prediction: By the End of 2027, Microsoft Will Be More Valuable Than Apple

Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) have been rivals for decades, but there's a big gap between them right now in terms of valuation. While they are two of the largest companies in the world, Apple is at a market cap of around $4.9 trillion, while Microsoft is further behind at $3.9 trillion.

The gap is significant right now, as the market is clearly more bullish about Apple and its business than Microsoft. But that could be a big mistake. Here's why I think Microsoft will become the more valuable company by the end of next year, and why it's the better tech stock to buy today.

Image source: Getty Images.

Microsoft's opportunities in artificial intelligence may be underrated

While Microsoft's stock has been soaring since it posted its latest quarterly numbers, the market may be too razor-focused on its cloud computing business, Azure, and how strong its growth rate is. That can have a significant impact on investor sentiment around the stock.

Microsoft, however, has massive potential due to artificial intelligence (AI) in other areas of its business as well. Revenue related to its Microsoft 365 Office software has been growing fast, and there may be even more growth opportunities in the near future. The company's Microsoft 365 Copilot hit a milestone in its most recent quarter: 30 million paid seats. It's a growing area of its business that the market may be underestimating.

In the June quarter, Microsoft reported double-digit revenue growth across many of its key product and service lines. While Azure is the star of the show with a 43% growth rate, investors also shouldn't overlook Microsoft 365 consumer cloud revenue, which rose by 24%. The commercial cloud revenue was up 14% as well.

With some intriguing AI-related growth opportunities that are still in their early innings, I'm confident Microsoft's stock will rise far higher over the next year.

Its lower valuation makes it a much better buy than Apple

By comparison, Apple's AI strategy is much more questionable, as it has been a bit of a laggard in that area. For now, that hasn't hurt the stock, as investors appear to be encouraged by its more cautious approach.

But with a new CEO at the helm and much potentially hinging on the success of its new foldable phone, Apple is a much riskier stock to own these days than Microsoft. At 38 times earnings, expectations are also going to be far higher for Apple than they will be for Microsoft, which trades at just 29 times its trailing profits.

In the months ahead, I believe Microsoft will rise significantly in value as it'll likely generate strong AI-related revenue and the market will reward it for doing so. Apple, meanwhile, may be due for a pullback as its valuation looks fairly rich given the uncertainty around its future growth. And by the end of 2027, I predict Microsoft will be the more valuable tech company.

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.