Microsoft vs. Google: Which AI Stock is Better to Buy Now?

OpenAI launched the latest version of ChatGPT in late 2022, and with it increased investor interest in all things artificial intelligence (AI). from then, microsoft (MSFT 1.84%) and alphabet (GOOG 0.58%) (google 0.86%) We have emerged as two AI leaders defining the category and its applications. Microsoft is a close partner of OpenAI, and Alphabet was quick to release its answer to ChatGPT (Bard) shortly after ChatGPT was released.

Nearly a year after Microsoft unveiled its AI-powered Bing Chat and Alphabet launched Bard, both companies reported quarterly earnings for the October through December period. Investors sold both stocks in response to the reported news, suggesting the AI ​​stock boom may be overdone. Nonetheless, both companies delivered solid numbers.

Let’s take a closer look at each company’s recently released reports to see which AI stocks are better to buy today.

Image source: Getty Images.

Microsoft reports widespread growth.

Microsoft was recently named the world’s most valuable company. apologize, the company’s earnings show why. To be fair, the enterprise software company closed its acquisition of Activision Blizzard last October, so its results are up slightly from the year-ago quarter.

Microsoft’s revenue for the second quarter of fiscal 2024 rose 18% year-over-year to $62 billion, beating analyst estimates of $61.14 billion. Operating profit increased 33% year over year and 25% on a non-GAAP (generally accepted accounting principles) basis. In conclusion, earnings per share (EPS) also increased 33% year over year, or 26% on a non-GAAP basis, to $2.93. It also came out ahead of expectations.

Microsoft’s cloud is once again a bright spot for the company, with its Intelligent Cloud segment growing 20% ​​year-over-year and Azure revenue growing 30%. Search and news advertising revenue growth was modest at 8% year-over-year. This indicates that Bing Chat has not grown as the company had hoped.

Microsoft ended the after-hours session down 0.3%.

Alphabet falls short in key metrics.

Alphabet delivered an overall solid fiscal 2023 fourth quarter report as the company continues to recover from a slowdown in the digital advertising market. Revenue rose 13% year-over-year to $86.3 billion, ahead of the $85.3 billion consensus, but advertising revenue came in slightly below expectations at $65.5 billion, sending shares down 6% in after-hours trading.

Weaker-than-expected ad revenue growth appears to indicate that Alphabet is losing ad market share to competitors or that AI is not yet having a significant impact on ad spending.

Bottom line, EPS jumped from $1.05 to $1.64, driven by a $2 billion improvement in equity securities. Operating profit increased 30% to $23.7 billion.

Advertising revenue rose 11% to $65.5 billion, in part due to continued weakness in Google’s network, which led to another decline in revenue. Google Cloud, another notable business unit, grew 26% to $9.2 billion, with operating profit of $864 million, compared to a loss of $186 million in the same period last year.

head to head comparison

Both Microsoft and Alphabet have seen strong stock gains over the past year, with each company reporting similar growth in its top and bottom lines in recent quarters. The difference between the two companies ultimately lies in their AI strategies, and this is where Microsoft appears to have the edge.

The company has introduced AI-powered Copilot across a variety of products, including the Office 365 suite, Github, Azure, and Bing. Microsoft executives also said AI has boosted Azure’s revenue growth by 6 percentage points, pushing growth from 24% to 30%, which is significant and likely to improve.

Finally, compared to Alphabet, Microsoft seems better prepared for the AI ​​revolution, as it has made acquisitions like Github that fit well with its AI Copilot tools, and its investment in OpenAI has been a game-changer.

Alphabet, on the other hand, acquired AI lab DeepMind a few years ago, but did not integrate it with Google Brain until last year. Google’s parent company has the technology to launch its own chatbots, but it has allowed OpenAI and ChatGPT to set the narrative with AI chat.

Why Microsoft is a Better AI Stock to Buy

Alphabet is no slouch in the AI ​​space. But Google’s parent company lacks the strategy and applications to fully harness the power of generative AI in the same way as Microsoft.

Microsoft, on the other hand, planned for this moment and took a smart risk, including collaborating with OpenAI. It also has a much more diverse product range than Alphabet, which generates most of its revenue from advertising, and so far does not appear to have benefited much from AI.

Microsoft stock is more expensive than Alphabet, but it’s better to buy it here than AI stock. The long-term prospects with new technologies look much more promising still.