Two tech giants, Microsoft and Alphabet (Google), battle for artificial intelligence (AI) supremacy. Both have reported strong Q4 earnings, but which is the better AI stock to buy?
In the latest round of earnings reports, Microsoft comes out on top. With revenue surging 18% YoY to a staggering $62 billion in the fiscal 2024 second quarter, Microsoft’s financial performance exceeded analyst expectations. Operating income saw a remarkable 33% YoY jump, with earnings per share (EPS) following suit, up by 33%.
Azure Shines Bright for Microsoft
Microsoft’s intelligent cloud segment, powered by Azure, showed impressive growth, clocking in at a 20% YoY increase. Azure’s revenue, specifically, surged by an impressive 30%. However, only some were rosy; the search and news advertising revenue growth was modest at 8% YoY, signaling that Bing Chat may not have achieved the breakthrough Microsoft anticipated.
Alphabet, the parent company of Google, reported its fiscal 2023 fourth-quarter earnings. While the overall revenue climbed by 13% YoY to $86.3 billion, ad revenue of $65.5 billion fell slightly short of expectations. This shortfall sent the stock price down by 6% in after-hours trading.
In the AI arena, Alphabet has made strides with Google Cloud, registering a substantial 26% growth in revenue, which reached $9.2 billion. Operating income, once in the red, now stands at a healthy $864 million.
Head-to-Head: Microsoft’s AI Strategy vs. Alphabet’s Approach
Here’s where the battle for AI supremacy gets interesting. Microsoft has made significant inroads with its AI strategy. The company introduced AI-powered Copilot across various products, including Office 365, Github, Azure, and Bing. Microsoft attributes a noteworthy six percentage points of revenue growth in Azure to AI, pushing it from 24% to a substantial 30%.
Microsoft’s strategic acquisitions, like Github, have synergized well with its AI Copilot tools. Furthermore, the company’s pivotal investment in OpenAI has proven to be a game-changer. Microsoft seems well-prepared for the AI revolution, and its forward-thinking approach has positioned it as a leader in this burgeoning field.
In contrast, Alphabet’s AI strategy appears less clear-cut. Despite possessing AI capabilities, the company has yet to harness generative AI to the same extent as Microsoft. Alphabet’s acquisition of DeepMind, an AI research lab, occurred several years ago but was only recently integrated with Google Brain.
The Better AI Stock: Microsoft Takes the Lead
So, which is the better AI stock to invest in? Microsoft’s proactive approach, diversified product range, and strategic alliances, particularly with OpenAI, give it a distinct edge. While Alphabet is not a slouch in AI, it lacks the strategic depth and diversified applications that Microsoft has adeptly cultivated.
Investors looking for long-term prospects in the AI industry may find Microsoft to be the more promising choice. However, it must be noted that Microsoft’s stock may come at a higher price than Alphabet’s.
For those seeking investment opportunities, it’s worth considering Microsoft, as it’s deemed one of the ten best stocks by Motley Fool’s Stock Advisor newsletter. With a track record of tripled market performance, this recommendation carries weight.
Microsoft and Alphabet are formidable contenders in the rapidly evolving AI landscape. Their earnings reports underscore their financial prowess, but Microsoft’s more strategic approach and preparations for the AI revolution make it the top choice for investors seeking to capitalize on the potential of artificial intelligence.
