Both of these companies dominate the technology industry and have exciting long-term prospects, but one company is trading at a better valuation.
Earnings season is in full swing, and countless stocks are rising in value. As is often the case, technology markets experience significant fluctuations. Easing inflation and advances in artificial intelligence (AI) have investors taking a bullish view on the companies that stand to benefit most from these developments. In fact, the NASDAQ 100 technology sector is up 50% in the past 12 months.
alphabet (GOOG 0.32%) (Google 0.37%) and microsoft (MSFT 2.22%) has delivered the biggest gains, with shares up 55% and 32% over the past 12 months. These companies host some of the most widely used online services and have a bright future in the emerging AI market over the next decade.
Alphabet and Microsoft are likely assets to any portfolio in the long run, and are worth considering now before it's too late. So let's take a closer look at Alphabet and Microsoft's businesses to determine which is a better stock to invest in technology with.
alphabet
Alphabet announced its 2024 first quarter financial results on April 25th, with sales increasing 15% year-on-year to $81 billion. The company exceeded sales expectations by $2 billion. Meanwhile, earnings per share were expected to reach $1.89, beating Wall Street expectations by $0.38.
Alphabet stock soared 14% in after-hours trading on April 25 after strong quarterly results. The quarter showed the potential of Alphabet's business, with strong growth in its advertising business and signs that its investments in AI are starting to pay off.
During the quarter, Google's ad revenue increased 14% year-over-year, and its AI-focused Google Cloud division posted 28% growth.
With user-rich platforms like YouTube, Android, Chrome, and many services under the Google umbrella, Alphabet has become an advertising powerhouse. And now it looks like these services could help the company play a key role in AI.
The AI market is expected to be valued at nearly $2 trillion by 2023, up from just under $200 billion last year. Meanwhile, Alphabet's leading role in the technology space and $69 billion in free cash flow suggests the company has the financial resources and brand power to thrive in this space in the coming years. are doing.
microsoft
Microsoft also announced its financial results on April 25th, revealing its business results for the second quarter of 2024 (ending March 2024). Like Alphabet, Microsoft also delivered stellar results. Revenue for the quarter rose 18% from a year earlier to $62 billion, beating expectations by $1 billion.
Windows delivered gains across multiple segments, with Productivity and Business Processes revenue up 12% year-over-year and Intelligent Cloud revenue up 21%. Additionally, Personal Computing sales increased 17% year-over-year, reflecting continued improvements in the PC market and signs that last year's acquisition of game developer Activision Blizzard is paying off.
Home to brands like Windows, Office, Azure, Xbox, and LinkedIn, Microsoft's influence in technology is vast. The company holds leading positions in multiple markets, making its stock one of the best ways to invest in the industry.
In fact, Microsoft holds the second largest market share in the cloud market ( Amazon web services) and is gradually approaching the top spot. Microsoft's partnership with ChatGPT developer OpenAI and its expanding role in cloud computing make Microsoft one of the biggest threats in AI, supported by impressive growth in the cloud segment in Q2 2024.
Which is a better tech stock: Alphabet or Microsoft?
The choice between investing in Alphabet or Microsoft is not an easy one. The company's stock has seen impressive growth over the past five years, with Alphabet up 164% and Microsoft up 209%. Meanwhile, both companies had great quarters, beating expectations on multiple fronts. They are in a similar position in terms of free cash flow, with Alphabet at $69 billion and Microsoft at $70 billion.
Therefore, it's worth comparing the values of the stocks to decide which one is better to buy now.
Data by YCharts
This chart compares Alphabet and Microsoft using three key metrics, and Google appears to be winning on all three fronts. For each of these metrics, the lower the number, the better the value. As a result, Alphabet's lower forward price-to-earnings ratio, lower price-to-free cash flow, and lower price-to-sales ratios indicate that Alphabet stock is a better value.
Alphabet is a better tech stock to buy than Microsoft this month, thanks to its lucrative digital advertising business and growing position in AI. However, it's worth keeping an eye on Microsoft so you can attack when the time is right.
Alphabet executive Suzanne Frye is a member of The Motley Fool's board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool's board of directors. Dani Cook has no position in any stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool recommends the following options: His January 2026 $395 long call on Microsoft and his January 2026 $405 short call on Microsoft. The Motley Fool has a disclosure policy.
