Everyone is down on Microsoft, but I am still a huge fan. I just bought a new Windows 7 laptop with 4 processors, 6 gigs of RAM, and a 500 gigabytes of Hard disk storage. Did I mention the 17 inch screen with 1920×1080 resolution. This cost only $1350! The closest thing from Apple is a 17-inch 2.8 Ghtz system for $2499.00 – about half the speed but twice the price! As of February 2010, Windows still commands 92.12% of the OS market share, compared to 5.02% for Apple, and 0.98% for Linux. The PC installed base is 1.1 billion. OK, so lets do the math, in the next ten years that entire installed base will have to upgrade at some time to new machines – we are talking over a billion machines for Microsoft alone.
The market cap for Apple is 204 billion, that of Microsoft is 259 billion, i.e. of the same order of magnitude. Apple machines are approximately two times as expensive as Microsoft machines, so are unlikely to grab market share away from the the cheaper incumbent. But Microsoft’s upgrade potential is twenty times that of Apple. Microsoft has 33 billion in cash – as opposed to Apple which has 24 billion. Now, I will be the first to admit that Vista was a piece of Junk, but Windows 7 is another story. This new OS fixes most if not all of the complaints about Vista and far exceeds the Mac OS in the areas of integration, ease of use, and programming tools.
At $28 a share, Microsoft is clearly the undervalued company here. I would absolutely expect their stock to double over the next year. As for Apple, I would expect it to crest at about $250 a share.
