Microsoft (NASDAQ: MSFT) recently announced a new $ 60 billion share buyback program. With that kind of money, the software giant could shop for a number of colleagues in IT departments, including the leader in computer-aided design software. Autodesk (NASDAQ: ADSK) which has a market capitalization of just over $ 60 billion. What is the best stock to buy, Microsoft or Autodesk? In this Motley Fool Live segment of “The Five” recorded September 15th, Fool.com contributors Jason Hall, Toby Bordelon and Nicholas Rossolillo intervene.
Jason Hall: Despite Jeff’s derogatory statements about my appearance, despite that, Market Musician, we will answer your wonderful question. So it’s interesting, isn’t it? There is a little thing about this that I’m not sure: why would anyone buy Autodesk, ADSK, rather than Microsoft? You said a similar market capitalization. I’m not quite following you there, because it’s about an order of magnitude difference.
Toby Bordelon: Doesn’t Autodesk have a market cap of around $ 60 billion?
Room: So it comes back to that first question – advocate for buying Autodesk. I don’t know if this is something either of you would like to do or do the counter? Pseudo? Tobias? I don’t know how many of you are following here. Nick, go ahead, weigh yourself.
Nick Rossolillo: I wouldn’t, because Autodesk has, as Toby mentioned, a market cap of $ 60 billion, a similar gross margin growth profile to Microsoft at this point. With Microsoft, you get greater and more stable business dominance in the cloud and more traditional computing for a similar rate of growth. At least not too much of a difference.
Room: I will make a counterpoint on this. So you also have some similarities in terms of dominance in its market. I think there is a case where Autodesk is even more dominant than Microsoft, but certainly in more mature industries that don’t have the same growth profiles as the cloud. But here is the case for me for Autodesk. The company has largely moved to a SaaS model. It has moved away from selling and renewing the traditional software model, but it still has the potential to move many of its old customers to that SaaS model. And there are things management is doing right now to leverage their operations and essentially double their free cash flow over the next four or five years. So while the income isn’t necessarily going to grow at a high rate, their ability to build a much more cash cow focused business, that really appeals to me. I think it’s really attractive. I would say this. We created a construct to have a debate on business. I think if you are interested in where the software is located Autodesk is a great company. He is just as worthy to own as Microsoft. But I think a lot of what you said is correct, Nick.
Bordeaux: Actually, I thought about it while looking at this question, Jason. This is the first company that comes to mind. Then I came across DocuSign. Well, I’d rather do DocuSign with my $ 60 billion. But yes, you could definitely make a case for Autodesk. I think there’s a reason it’s a $ 60 billion business. You have a lot of things to do.
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