Better Tech Stock: Microsoft vs. Alphabet
Tech stocks haven't had it easy over the last month as Wall Street has grown weary of the short-term potential of sectors like artificial intelligence (AI) and chips. As a result, the tech-rich Nasdaq Composite has dipped around 10% since early July.
However, it's hard to overlook the industry's long-term growth history. The same index climbed 285% over the last decade, outperforming the S&P 500's 178% rise. Tech remains a compelling market to invest in and hold for many years, since it's driven by innovative companies that have ceaselessly pushed the envelope. As a result, a recent sell-off presents an exciting investment opportunity, with many stocks trading at better values.
Two attractive options are Microsoft (NASDAQ: MSFT) and Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG). These companies dominate their respective tech areas, exposing investors to some of the fastest-growing industries.
So, let's examine these companies more closely and determine whether Microsoft or Alphabet is the better buy.
Microsoft
Microsoft's share price dipped 11% over the last 30 days, brought down by an overall cooldown in tech and mixed earnings.
The company reported its fourth quarter of 2024 earnings on July 30, revealing a 15% year-over-year rise in revenue, beating Wall Street expectations by about $260 million. Meanwhile, earnings per share (EPS) of $2.95 came in $0.02 higher than anticipated. Microsoft's earnings were overall positive, with all three of its main segments delivering double-digit revenue gains and operating income popping 15% year over year.
However, an AI-focused Wall Street was let down by the company's intelligent-cloud segment, which posted revenue of $28.5 billion, $200 million shy of analysts' forecasts.
Yet, it wasn't all bad news for Microsoft's cloud division. The segment matched its biggest rival in cloud growth for the quarter, with Amazon Web Services (AWS) also posting a revenue increase of 19% year over year. Meanwhile, Microsoft's Azure and other cloud-services sales rose 29% in the quarter.
The main takeaway from Microsoft's latest quarter is the long-term reliability of its business. The company's development has always been more of a slow burn rather than an all-at-once expansion. It's seen its stock rise 408% over the last 10 years. As a result, its stock remains a compelling buy for patient investors.
Alphabet
Alphabet is another company that has suffered a stock slip, falling 10% in the last month. Like Microsoft, the company had a generally positive quarter but missed analysts' forecasts on one point.
The Google company was among the first to release new earnings, posting its Q2 2024 results on July 23. The quarter saw revenue increase by 14% year over year, outperforming Wall Street estimates by $450 million as EPS beat by $0.04. Alphabet's Google Cloud segment beat expectations and its competitors, delivering a 29% spike in revenue. The growth was promising as the company works to catch Microsoft and Amazon in the space by expanding its AI offerings.
Q2 2024 earnings were positive but missed on YouTube ad revenue. Sales for the segment hit $8.66 billion against expectations of $8.93 billion. However, total Google advertising remains a lucrative division, with revenue increasing by 11% year over year thanks to considerable gains from Search.
Alphabet has grown into a tech behemoth in its 25 years of business, responsible for the popularity of multiple leading brands, including YouTube, Google, Android, and Chrome. Despite recent declines, its potent position in tech has seen its stock rise 90% over the last five years alongside triple-digit earnings growth.
Is Microsoft or Alphabet the better tech stock in 2024?
Microsoft and Alphabet are easily compared businesses. They are each active in cloud computing, productivity software, AI, and digital advertising. Meanwhile, they both boast a spot in the world's top-five most-valuable companies by market cap, illustrating their reliability as long-term growth stocks. Microsoft's market cap topped $3 trillion this year, while Alphabet's is just above $2 trillion.
Either of these companies' stocks would likely prove to be assets if held over many years. As a result, it's worth comparing their valuations to make a more informed decision about which is the better buy.
Data by YCharts.
This chart shows Alphabet's shares are trading at a significantly better value than Microsoft's, with a far lower price-to-earnings (P/E) ratio and price-to-sales (P/S) ratio. Additionally, Alphabet's P/E and P/S are below their 10-year averages, while Microsoft's are higher for both metrics.
In addition to a consistently expanding business and a solid role in tech, Alphabet is the better stock to buy right now.
Should you invest $1,000 in Microsoft right now?
Before you buy stock in Microsoft, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Microsoft wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $641,864!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of August 6, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
