Apple Vs.Microsoft: Margin Expansion Is Apple’s Massive Advantage
Apple and Microsoft both crushed earnings estimates, but one is quietly pocketing far more of every dollar it earns while the other bets billions on infrastructure that has yet to pay off. The gap between their margin trajectories reveals which…
Apple (NASDAQ:AAPL | AAPL Price Prediction) and Microsoft (NASDAQ:MSFT) both beat estimates in their most recent earnings reports. Their profits are heading in opposite directions. Apple widened margins on iPhone demand and kept infrastructure spending light. Microsoft grew faster but put heavy cash into AI data centers. Apple reports again soon, so now is a good time to compare them.
iPhone Strength Lifts Apple as the Shift to Azure Squeezes Microsoft Cloud Margins
Apple’s June-quarter revenue rose 16.4% to $109.42 billion, and the iPhone 17 family pushed iPhone sales up 22% to $54.3 billion. That points to a real upgrade cycle. Operating income rose 26.57%, faster than sales, a sign of margin expansion. Gross margin reached 50.1%.
That margin comes with warnings: tariff refunds added roughly two percentage points, and memory costs are rose. Tim Cook called it “a 100-year flood on the memory pricing”.
Microsoft’s revenue rose 18.8% to $92.28 billion, and Azure grew 48%. Microsoft Cloud gross margin fell to 66% as sales shifted toward Azure. Capital expenditures of $45.2 billion left free cash flow at $18.6 billion. Operating cash flow was $58 billion, so reinvestment is absorbing most of the cash.
| Business Driver | Apple | Microsoft |
|---|---|---|
| Growth Engine | iPhone 17 family | Azure and Foundry |
| Margin Pressure | Memory costs | Higher Azure share of sales |
| Shareholder Returns in Quarter | $33 billion | $10.2 billion |
Apple Rents AI Capacity While Microsoft Builds Its Own
Apple uses a hybrid AI model that combines its own data centers with third-party cloud capacity. It also runs Siri AI on the device itself, which Cook called “a competitive weapon”. Jim Cramer described Apple as “spending next to nothing, just partnering with AI companies,” and said that makes it less risky than the rest of the Magnificent Seven.
Microsoft’s latest call guided calendar-year capex to approximately $170 billion. CFO Amy Hood said that “each dollar of CapEx has the potential to support more revenue and higher returns over time.” A $677 billion commercial backlog, up 73%, gives her claim support.
Memory Costs and a CEO Handoff Set Up Apple’s Next Test
Upcoming results will show whether September-quarter gross margin fell within Apple’s July guidance of 47% to 48%, which included about one point from tariff refunds, and test pricing power against rising memory costs. Cook said the July call was his final one as CEO, and John Ternus is expected to lead future calls.
Also watch whether Microsoft’s efficiency gains lift cloud margins before capex peaks. Its latest call guided Windows OEM and devices revenue to decline in the mid-30s this quarter, which will weigh on results.
Why I Lean Toward Apple for Margin Quality
To me, Apple turns demand into profit more efficiently. A Services gross margin of 75.6% and more than two and a half billion active devices give that margin strength staying power. My hesitation is valuation. Apple trades near 45 times earnings, compared with 29 for Microsoft. Apple shares are up 27.12% year to date, against 8.6% for Microsoft.
Microsoft offers more direct exposure to AI infrastructure spending, and the picks-and-shovels names driving that expansion (we rounded up seven of them, from power to cooling, in a free report here) are another way to play the same trend. My view would change if Apple’s gross margin fell below guidance, or if Microsoft’s free cash flow rebounds while Azure keeps growing.
Contact [email protected] for any questions or corrections.
Alex Sirois is a financial writer with experience spanning both retail and institutional investing. He has written for InvestorPlace and held roles at BNY Mellon and Bernstein, giving him a perspective that bridges Main Street portfolios and Wall Street analysis.
Alex holds an MBA from George Washington University and has built his career across multiple industries, including e-commerce, education, and translation — a breadth of experience that informs how he breaks down complex financial topics for everyday investors. His writing is conversational, actionable, and grounded in long-term, buy-and-hold investing principles.
At 247 Wall St., Alex focuses on delivering analysis that is both accessible and useful, with a clear emphasis on helping readers make more informed decisions with their money.
