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U.S. vs. China: Which Tech Giant Should Investors Buy?

The technology industry is experiencing a significant expansion due to rising global IT expenditures among enterprises on digital transformation initiatives and the rapid adoption of emerging technologies. Amid this, let’s analyze Microsoft (MSFT) and Tencent Holdings (TCEHY) to determine which tech stock is an ideal buy now. Read on to find out...

On a global scale, the rise in IT expenditures, combined with the widespread adoption of Software-as-a-Service (SaaS) and expanded cloud-based options, signals a growing demand for tech services across industries. According to the latest forecast by Gartner, worldwide IT spending is expected to total $5.08 trillion in 2024, an increase of 8% from the past year.

Furthermore, enterprise software and services are widely utilized in end-use industries such as government, healthcare, manufacturing, and retail as they simplify their operations. Also, the market is predicted to benefit from the rising usage of innovative technologies such as blockchain, the Internet of Things (IoT), Artificial Intelligence (AI), machine learning, and 5G.

According to a Grand View Research report, the global business software and services market is expected to total $1.15 trillion by 2030, expanding at a CAGR of 11.9%.

Against this backdrop, let’s compare two tech stocks, Microsoft Corporation (MSFT) and Tencent Holdings Limited (TCEHY), to analyze which tech giant investors should buy now.

The Case for Microsoft Corporation Stock

Valued at $3.12 trillion by market cap, Microsoft Corporation (MSFT) is a technology giant that develops and supports software, devices, and solutions globally. The company operates through Productivity and Business Processes; Intelligent Cloud; and More Personal Computing segments.

MSFT’s stock has gained 32.6% over the past nine months to close the last trading session at $420.21. Over the past year, the stock has surged 33.8%.

On May 8, 2024, MSFT announced a broad investment package designed to strengthen the role of Southeast Wisconsin as a hub for AI-powered economic activity, innovation, and job creation.

These investments include $3.3 billion in cloud computing and AI infrastructure, the creation of the country's first manufacturing-focused AI co-innovation lab, and an AI skilling initiative to equip more than 100,000 of the state's residents with essential AI skills.

MSFT’s trailing-12-month gross profit margin of 62.89% is 42.5% higher than the industry average of 49.05%. Likewise, its trailing-12-month EBIT margin of 44.70% is 892.7% higher than the industry average of 4.50%. However, the stock’s trailing-12-month asset turnover ratio of 0.55x is 11% lower than the industry average of 0.62x.

During the third quarter, which ended March 31, 2024, MSFT’s total revenue increased 17% year-over-year to $61.86 billion. Its operating income came in at $27.60 billion, up 23% from the prior year’s quarter. Its net income rose 19.9% from the year-ago value to $21.94 billion.

However, the company’s cash outflow from investing activities grew 228.2% from the prior year’s period to $10.70 billion. As of March 31, 2024, MSFT’s cash and cash equivalents amounted to $19.63 billion, down from $34.70 billion as of June 30, 2023.

Street expects MSFT’s revenue for the fourth quarter (ended June 2024) to increase 14.6% year-over-year to $64.39 billion. The company’s EPS is estimated to grow 9% year-over-year to $2.93 for the same quarter. Moreover, the company has topped consensus revenue and EPS estimates in each of the trailing four quarters, which is excellent.

MSFT’s POWR Ratings reflect its mixed outlook. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

MSFT has a C grade for Growth and Momentum. It is ranked #19 among 43 stocks in the B-rated Software - Business industry.

Click here for the additional POWR Ratings for MSFT (Value, Growth, and Momentum).

The Case for Tencent Holdings Limited Stock

With a $481.148 billion market cap, Tencent Holdings Limited (TCEHY) is an investment holding company that offers value-added services (VAS), online advertising, fintech, and business services internationally. It operates through VAS; Online Advertising; FinTech and Business Services; and Other segments. TCEHY is headquartered in Shenzhen, China.

TCEHY’s stock has gained 33.7% over the past month and 21.3% over the past nine months to close the last trading session at $51.08.

TCEHY’s trailing-12-month EBITDA margin and EBIT margin of 32.08% and 28.69% are 72.6% and 225.3% higher than the industry averages of 18.59% and 8.82%, respectively.

For the first quarter that ended March 31, 2024, TCEHY’s total revenues increased 6.3% year-over-year to 22.50 billion. Its gross profit increased 23% from the year-ago value to 11.80 billion. Its non-IFRS operating profit came in at $8.30 billion, up 30% year-over-year.

In addition, non-IFRS profit attributable to equity holders of the company rose 54.5% year-over-year to $7.10 billion. Also, its free cash flow was $7.30 billion for the quarter.

Analysts expect TCEHY’s revenue for the second quarter (ending June 2024) to increase 9.2% year-over-year to $22.32 billion. Likewise, its EPS for the same quarter is projected to grow 34% year-over-year to $0.71. For the fiscal year 2024, the company’s revenue and EPS are expected to grow 8.4% and year-over-year to $91.70 billion and $3.03, respectively.

TCEHY’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, translating to a Buy in our proprietary rating system.

The stock has an A grade for Stability and Sentiment. TCEHY is ranked #7 out of 39 stocks in the China industry.

In addition to the POWR Ratings I’ve just highlighted, you can see TCEHY’s ratings for Growth, Momentum, Quality, and Value here.

U.S. vs. China: Which Tech Giant Should Investors Buy?

The increasing need for software across various industries sets the stage for substantial long-term growth in the tech sector. This expansion is propelled by rising global expenditures among enterprises, the swift integration of emerging technologies such as AI, machine learning, and the IoT, and the growing demand for cloud computing and cybersecurity solutions.

Leading tech companies MSFT and TCEHY stand to capitalize on the optimistic industry outlook. However, TCEHY’s strong financial performance, higher profitability, and promising near-term outlook favor it as the better tech stock pick.

Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Software - Business here and China industry here.

What To Do Next?

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MSFT shares were trading at $426.38 per share on Monday morning, up $6.17 (+1.47%). Year-to-date, MSFT has gained 13.80%, versus a 12.09% rise in the benchmark S&P 500 index during the same period.

About the Author: Nidhi Agarwal

Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.


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