Microsoft and Google (Alphabet) have been engaged in a battle for artificial intelligence (AI) supremacy, and their recent earnings reports shed light on their respective performances in this space. While both companies have reported strong results, Microsoft appears to be the better AI stock choice for investors.
In Microsoft’s latest earnings report, the company showcased its impressive financial performance, surpassing analyst expectations. With a surge in revenue by 18% YoY to $62 billion in the second quarter of fiscal 2024, Microsoft demonstrated its robust growth. Operating income saw a remarkable 33% YoY jump, and earnings per share (EPS) followed suit, increasing by 33%.
One of Microsoft’s standout performers is its intelligent cloud segment, powered by Azure. This segment experienced a notable growth of 20% YoY, with Azure’s revenue surging by an impressive 30%. However, the search and news advertising revenue growth for Microsoft was modest at 8% YoY, suggesting that Bing Chat may not have achieved the expected breakthrough.
On the other hand, Alphabet, the parent company of Google, reported its fourth-quarter earnings for fiscal 2023. While the overall revenue climbed by 13% YoY to $86.3 billion, the ad revenue of $65.5 billion fell slightly short of expectations. This shortfall in ad revenue caused Alphabet’s stock price to drop by 6% in after-hours trading.
In terms of AI strategy, Microsoft has made significant strides. The company has 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%. Additionally, Microsoft’s strategic acquisitions, such as Github, have synergized well with its AI Copilot tools. Moreover, the company’s investment in OpenAI has proven to be a game-changer, positioning Microsoft as a leader in the AI field.
In contrast, Alphabet’s AI strategy appears less clear-cut. Although the company possesses AI capabilities, it has yet to fully harness generative AI in the same way as Microsoft. While Alphabet acquired AI research lab DeepMind several years ago, integration with Google Brain has been a more recent development.
Considering these factors, Microsoft emerges as the better AI stock choice for investors. Its proactive approach, diversified product range, and strategic alliances, particularly with OpenAI, give it a distinctive edge over Alphabet. While Alphabet is not lacking in AI capabilities, it falls short in terms of strategic depth and diversified applications compared to Microsoft.
Investors seeking long-term prospects in the AI industry may find Microsoft more promising. However, it is important to note that Microsoft’s stock may come at a higher price than Alphabet’s.
To summarize, Microsoft and Alphabet are formidable contenders in the AI landscape. Microsoft’s impressive financial performance, strategic approach, and preparations for the AI revolution position it as the top choice for investors looking to capitalize on the potential of artificial intelligence.
