Microsoft (MSFT -4.46%) and Meta Platforms (META -13.37%) have each seen valuation pullbacks in conjunction with bearish trends shaping the broader market. Even with strong business performance, Microsoft's share price is down roughly 33% from its high. Meanwhile, Meta Platforms faces more pronounced operating headwinds and it saw a much more precipitous valuation contraction -- the social-media giant's stock is off roughly 65% from its peak level.
Which one of these technology stocks stands out as the better buy at today's prices? Read on to see why two Motley Fool contributors have differing takes on which would be the best one to put your money behind.
Microsoft: The world's largest software company will keep growing
Keith Noonan: Through a cloud and subscription-focused transformation initiated by CEO Satya Nadella, Microsoft built an incredible recurring-revenue foundation. While the company isn't completely immune to periods in which macroeconomic headwinds shape the broader industry backdrop, the software giant has a sturdy sales base and should continue to be one of the strongest overall companies in the tech sector.
Despite currency headwinds and other macro pressures, Microsoft still managed to grow sales by roughly 11% year over year to reach $50.1 billion in the first quarter of its current fiscal year, which ended in September 2022. The company's intelligent cloud segment, which largely consists of its Azure business, grew sales 20% year over year in Q1 and accounted for roughly 40% of overall revenue in the period.
Having its fastest-growing segment also be its largest by revenue bodes well for Microsoft.
Between continued expansion for its Azure cloud-infrastructure business and solid, high-margin revenue growth for its subscription-based productivity software suite, Microsoft remains well positioned to continue driving strong results going forward.
With the stock trading at roughly 24 times expected forward earnings, Microsoft has a more growth-dependent valuation compared to Meta Platforms, but its near-term performance outlook appears much less fraught.
Microsoft also has appeal as a dividend-growth stock. While its current dividend yield remains relatively small at roughly 1.1%, the company raises its payout at a rapid clip and looks well positioned to deliver continued dividend growth.
MSFT Dividend data by YCharts.
While I also think that Meta Platforms stock offers an attractive risk-reward proposition at current prices, Microsoft's core business looks stronger. I believe both stocks present appealing long-term investment opportunities, but Microsoft stock is less risky while still offering substantial return potential.
Meta Platforms: The market is focused on the headwinds
Parkev Tatevosian: Meta Platforms stock suffered as part of the overall bear market, to be sure. That said, the social media giant faced several powerful headwinds in 2022 not directly related to the bear market, including rising competition from TikTok, adverse privacy policy changes at Apple, and a slowdown in marketing spending. Despite those numerous headwinds, Meta still managed to generate $84.4 billion in revenue in the first nine months of 2022 (fourth-quarter numbers are not out yet) and $22.5 billion in operating income, all while investing $25.6 billion in research and development.
Skeptics will say that operating income was down from $34 billion in the same time the prior, and they would be making a valid point. However, the stock price is down 66% from its recent highs and trading at a forward price-to-earnings ratio of 16. That cheap valuation suggests the market has already priced in the headwinds impacting Meta's prospects in the near term. Meanwhile, Meta boasts 2.93 billion daily active users across its family of apps. That was an increase of 50 million over the previous quarter and 120 million from the previous year.
META PE Ratio (Forward) data by YCharts.
Sure, the near term may be pressured for Meta Platforms as it grapples with the headwinds mentioned above. But the company has proven it can generate massive profits and is still adding millions of new users despite its large scale. For that reason, long-term investors can capitalize on Meta's relatively cheap valuation to scoop up shares.
Which stock is right for you?
While Microsoft's overall business looks stronger at the moment, big sell-offs have also pushed Meta Platforms' stock down to the point of having a much less growth-dependent valuation. If there's only room for one of these stocks in your portfolio, the best move would be to weigh each company's business strengths against its valuation profile and determine which is the better fit for your investment goals.
But for investors seeking more exposure to the technology sector, there's a lot to like about both Microsoft and Meta at today's prices, and buying both stocks could be the right move.
