Microsoft vs. Google: AI Investment Showdown After Q4 Earnings

In the realm of artificial intelligence (AI) investments, two tech behemoths—Microsoft and Alphabet (parent company of Google)—stand out for their notable contributions and advancements in AI technology. The release of ChatGPT by OpenAI, with Microsoft's backing, and Google's unveiling of Bard sparked considerable attention around AI's potential. As both companies have stepped into the spotlight as AI leaders, the financial community eagerly anticipated their Q4 earnings reports for signals on which stock might be the better AI investment.

Microsoft's Growth Narrative

Microsoft leapfrogged Apple to become the world's most valuable company, bolstered by its potent mix of enterprise software and strategic partnerships, like its collaboration with OpenAI. Its fiscal 2024 second-quarter results were impressive with an 18% increase in revenue to $62 billion and a 33% uptick in operating income (25% on a non-GAAP basis), signaling robust growth. The intelligent cloud segment, including Azure, enjoyed a 20% growth with Azure’s revenue climbing by 30%. However, the lukewarm 8% growth in search and news advertising suggests that Bing Chat hasn't quite met expectations. Nevertheless, Microsoft's stock only dipped marginally by 0.3% in after-hours trading, pointing to continued investor confidence.

Alphabet Struggles with Ad Revenue

Alphabet also showed resilience with a 13% jump in revenue reaching $86.3 billion in its fiscal 2023 fourth quarter. However, advertising revenue fell short, causing a 6% decrease in stock value after-hours. Google's ad revenue challenges may reflect a loss of market share or indicate that AI's impact on ad spending is still not fully realized. Meanwhile, Google Cloud has been a bright spot, with 26% growth and a shift to profit, signaling strength in Alphabet’s diverse offerings.

Microsoft vs. Alphabet: AI Focus

When evaluating both companies' AI strategies, Microsoft seems to have an edge. It has integrated AI across several products, including Office 365, Github, and Azure, showcasing a well-rounded AI approach. Moreover, its involvement with OpenAI through ChatGPT has been particularly impactful. Alphabet acquired AI lab DeepMind years ago but has only recently began to integrate its innovations with Google Brain, indicating a slower AI adoption pace. Google has the tech, but Microsoft has thus far been more adept at setting the AI narrative and leveraging its advancements.

Which Is the Better AI Stock?

While Alphabet offers robust AI capabilities, Microsoft's strategic direction and proliferation of AI applications highlight its advantage in the industry. Despite a higher stock price, Microsoft's AI foresight and diversity in non-ad-based revenue streams present compelling long-term prospects.

Investors are thus faced with a choice between the two giants, with Microsoft seemingly leading the AI race thus far.

Microsoft, Alphabet, AI