Best Artificial Intelligence Stock: Microsoft vs. Alphabet

The race for domination is on in the field of artificial intelligence. Two tech titans fighting for AI supremacy are Microsoft (NASDAQ:MSFT) and parent Google Alphabet (NASDAQ:GOOGL)(NASDAQ:GOOG).

Both are heavily involved in AI. Microsoft has invested billions of dollars in OpenAI, the company that helped launch the current AI frenzy with its ChatGPT Product. Alphabet created the Tensor Processing Unit, a piece of hardware that speeds up the processing of data by its AI computers.

Between these two technological powers, which is the best investment in AI? The answer is a bit complicated, so let’s compare the two to arrive at an answer.

Microsoft’s use of AI

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

For example, its Copilot AI is now integrated into the company’s ubiquitous Office software to help customers complete tasks like composing emails. An AI recruiting assistant has been added to its professional networking website, LinkedIn, as a tool for recruiters.

It’s azure cloud computing The platform provides the infrastructure for other companies to use Microsoft AI in their businesses. Customers are jumping at the opportunity to create their own AI assistant, adoption of which has doubled in the last six months.

Investments in AI are paying off. CEO Satya Nadella said: “Our AI business is on track to exceed $10 billion in annual revenue next quarter, making it the fastest business in our history to reach this milestone. »

Its AI products helped Microsoft deliver strong results during its fiscal first quarter, which ended September 30. First quarter revenue reached $65.6 billion, representing an increase of 16% from the previous year.

Not only did revenue increase, but fiscal first quarter net income increased 11% year-over-year to $24.7 billion. This, in turn, led to a dilution earnings per share (EPS) amounting to $3.30, an increase of 10% from the previous year.

The highlights of Alphabet’s AI

Alphabet may be known for its Google search engine, given its 90% market share in online search, but its work in AI allows 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 help them find it. 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, which allows companies to access its artificial intelligence platform and create their own AI applications. Social media business Instant is one of his clients.

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

Its AI achievements helped Alphabet achieve third-quarter revenue of $88.3 billion, a 15% year-over-year growth. Net income also increased during the quarter, reaching $26.3 billion, an increase of 33% from the previous year. This led to diluted EPS of $2.12 per share, an increase from $1.55 in 2023.

Choosing Between Microsoft and Alphabet Stocks

Microsoft and Alphabet have demonstrated impressive results from their AI initiatives. This makes it difficult to select a superior AI investment. However, another key factor came into play in the second half of this year.

In August, a U.S. judge ruled that Alphabet was violating antitrust laws. Then, on November 20, the U.S. Department of Justice filed a proposal asking the judge to break up the company.

This is not the only cloud hanging over the conglomerate. Alphabet faces second antitrust lawsuit. This targets Google’s advertising business, which accounted for $65.9 billion of its $88.3 billion in third-quarter sales. Closing arguments concluded on November 25 and the judge’s decision on the case is pending.

The uncertainty surrounding Google’s antitrust cases means that Microsoft is currently the safer choice to invest in compared to Alphabet. That said, another consideration between these stocks is their price/earnings ratio (S/E). This metric helps gauge stock valuation by telling you how much investors are willing to pay for a dollar of profits.

Data by Y Charts.

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

So now is a good time to pick up Alphabet shares. But what about antitrust lawsuits? As the company’s CEO Sundar Pichai said, Alphabet can appeal any court sanctions against it, which could take years to resolve. And that could win the appeal.

This is what happened to Microsoft in a similar case in 1998. The conglomerate lost an antitrust lawsuit related to its Internet Explorer browser and the company was ordered dissolved. But Microsoft appealed and avoided that fate.

Because these tech titans have powerful AI capabilities, they both make attractive AI investments. Given the antitrust lawsuits against Alphabet, based on your risk toleranceyou can evaluate whether you want to buy parent company Google or its competitor Microsoft.

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