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BETTER ARTIFICIAL INTELLIGENCE STOCK: MICROSOFT VS. ALPHABET

By Robert Izquierdo – Nov 29, 2024 at 4:07AM

Key Points

 * Both Microsoft and Alphabet possess potent AI offerings, helping to drive
   double-digit year-over-year revenue growth for each.
 * Microsoft's AI business is about to cross an annual run rate of $10 billion.
 * Alphabet infused impressive AI capabilities across its services, but
   antitrust lawsuits hang over its head.
 * Buy Alert: Our 10 best stocks to buy right now (see the list)


NASDAQ: GOOGL


ALPHABET



Market Cap
$2,072B

Today's Change
Arrow-Thin-Down
(-0.35%) -$0.60
Current Price
$168.63
Price as of November 29, 2024, 11:10 a.m. ET


The race is on for dominance in the artificial intelligence arena. Two tech
titans battling for AI supremacy are Microsoft (MSFT -0.04%) and Google parent
Alphabet (GOOGL -0.35%) (GOOG -0.34%).

Both are heavily involved in AI. Microsoft invested billions of dollars into
OpenAI, the company that helped kick off the current AI frenzy with its ChatGPT
product. Alphabet created the tensor processing unit, a piece of hardware that
accelerates data processing by its AI computers.

Between these two tech powerhouses, which is the better AI investment? The
answer is a bit complicated, so let's compare the pair to arrive at an answer.


MICROSOFT'S USE OF AI

Arrows-In Collapse



NASDAQ: MSFT

Microsoft
Today's Change
(-0.04%) -$0.17
Current Price
$422.81
Arrow-Thin-Down
YTD1w1m3m6m 1y
+13.79%
5y
Price VS S&P
MSFT


KEY DATA POINTS

Market Cap
$3,145B
Day's Range
$417.80 - $422.86
52wk Range
$362.90 - $468.35
Volume
6,866,434
Avg Vol
20,000,321
Gross Margin
69.35%
Dividend Yield
0.73%

Microsoft is a leader in delivering AI experiences to consumers and businesses.
The conglomerate injected AI across its broad range of offerings.

For example, its Copilot AI is now embedded in the company's ubiquitous Office
software to help customers perform tasks such as composing emails. An AI hiring
assistant was added to its professional networking website, LinkedIn, as a tool
for recruiters.



Its Azure cloud computing platform provides the infrastructure to enable other
companies to use Microsoft's AI in their businesses. Customers are jumping on
the opportunity to build their own AI assistant, with adoption doubling over the
past six months.

The AI investments are paying off. CEO Satya Nadella said, "Our AI business is
on track to surpass an annual revenue run rate of $10 billion next quarter,
which will make it the fastest business in our history to reach this milestone."


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Its AI products helped Microsoft achieve strong results in its fiscal first
quarter, which ended Sept. 30. Q1 revenue reached $65.6 billion, which
represented a 16% increase from the previous year.

Not only did revenue grow, its fiscal Q1 net income increased 11% year over year
to $24.7 billion. This, in turn, led to diluted earnings per share (EPS) rising
to $3.30, a 10% increase over the prior year.




ALPHABET'S AI STRENGTHS

Arrows-In Collapse



NASDAQ: GOOGL

Alphabet
Today's Change
(-0.35%) -$0.60
Current Price
$168.63
Arrow-Thin-Down
YTD1w1m3m6m 1y
+28.66%
5y
Price VS S&P
GOOGL


KEY DATA POINTS

Market Cap
$2,072B
Day's Range
$167.16 - $169.43
52wk Range
$127.90 - $191.75
Volume
4,910,589
Avg Vol
25,784,676
Gross Margin
57.89%
Dividend Yield
0.24%

Alphabet may be known for its Google search engine, given its commanding 90%
market share in online search, but its work in AI is enabling the company to
evolve its offerings.

For example, owners of the company's Pixel smartphone can use their fingers to
circle an item on the touchscreen, and AI will assist with a search. And now,
more than 25% of the software code created at Google is written by AI.

Like Microsoft, Alphabet has its own cloud computing service, Google Cloud, that
allows businesses to access its artificial intelligence platform and build their
own AI apps. Social media company Snap is one of its customers.

AI also plays a role in Alphabet's Waymo self-driving car business. Waymo now
provides more than 150,000 paid rides every week.



Its AI accomplishments helped Alphabet hit $88.3 billion in Q3 revenue,
representing 15% year-over-year growth. Net income also rose in the quarter,
reaching $26.3 billion, a 33% jump up from the prior year. This led to diluted
EPS of $2.12 per share, an increase over 2023's $1.55.


DECIDING BETWEEN MICROSOFT AND ALPHABET STOCKS

Microsoft and Alphabet have demonstrated impressive outcomes with their AI
initiatives. This makes selecting the superior AI investment a difficult choice.
However, one other key factor entered the mix in the second half of this year.

In August, a U.S. judge found Alphabet to be in violation of antitrust laws.
Then, on Nov. 20, the U.S. Justice Department filed a proposal asking the judge
to break up the company.

That's not the only cloud hanging over the conglomerate. Alphabet faces a second
antitrust lawsuit. This one targets Google's advertising business, which
accounted for $65.9 billion of its $88.3 billion in Q3 sales. Closing arguments
were completed on Nov. 25, and the judge's ruling on the case is pending.



The uncertainty around Google's antitrust cases means Microsoft is the safer
choice to invest in over Alphabet at this time. That said, another consideration
between these stocks is their price-to-earnings (P/E) ratio. This metric helps
to assess stock valuations by telling you how much investors are willing to pay
for a dollar's worth of earnings.



Data by YCharts.

As the chart shows, Alphabet's P/E multiple is lower than Microsoft's at the
time of this writing, indicating its stock is a better value. This makes sense
since, as of Nov. 25, its share price was down significantly from the 52-week
high of $191.75 it reached in July.

Therefore, now is a good time to pick up Alphabet shares. But what about the
antitrust lawsuits? As the company's CEO Sundar Pichai said, Alphabet can appeal
any court-ordered penalties against it, which could take years to sort out. And
it could win the appeal.



That's what happened to Microsoft in a similar case back in 1998. The
conglomerate lost an antitrust lawsuit related to its Internet Explorer browser,
and a breakup of the company was ordered. But Microsoft appealed and avoided
that fate.

Because these tech titans have potent AI capabilities, they are both appealing
AI investments. Given the antitrust lawsuits hanging over Alphabet, based on
your risk tolerance, you can assess whether you want to buy the Google parent or
its competitor Microsoft.


SHOULD YOU INVEST $1,000 IN ALPHABET RIGHT NOW?

Before you buy stock in Alphabet, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are
the 10 best stocks for investors to buy now… and Alphabet wasn’t one of them.
The 10 stocks that made the cut could produce monster returns in the coming
years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000
at the time of our recommendation, you’d have $829,378!*

Stock Advisor provides investors with an easy-to-follow blueprint for success,
including guidance on building a portfolio, regular updates from analysts, and
two new stock picks each month. The Stock Advisor service has more than
quadrupled the return of S&P 500 since 2002*.

See the 10 stocks ›



*Stock Advisor returns as of November 25, 2024





Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board
of directors. Robert Izquierdo has positions in Alphabet and Microsoft. The
Motley Fool has positions in and recommends Alphabet and Microsoft. The Motley
Fool recommends the following options: long January 2026 $395 calls on Microsoft
and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure
policy.


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