Microsoft and Alphabet, the parent company of Google, are locked in a fierce battle for AI supremacy. Both companies recently released their financial results for the quarter ended June 30, showcasing their unique strengths in the AI arena. This raises an important question for investors: Which stock is the better buy right now?
Microsoft has positioned itself as a dominant force in AI by investing a whopping $13 billion into OpenAI, the developer behind the ChatGPT chatbot. Microsoft has integrated ChatGPT into its Bing search engine, revolutionizing the way consumers seek information online. By offering direct answers to user queries, chatbot-based search has the potential to transform the future of search engines. Microsoft’s integration of ChatGPT doesn’t stop at Bing; it also features in Microsoft 365, where a generative AI called Copilot assists users in creating text, images, and presentations. This new addition presents a new revenue stream for Microsoft’s AI business, charging $30 per user per month for commercial customers.
Microsoft’s Azure cloud platform also plays a significant role in its AI strategy. It offers OpenAI’s latest GPT-4 technology, providing businesses with access to the most powerful AI tools and services. Azure OpenAI Service has seen a substantial increase in customer adoption, with 11,000 customers at the end of fiscal 2023 compared to 2,500 just three months prior. Major companies like Mercedes Benz plan to integrate ChatGPT into their voice assistants, further solidifying Microsoft’s leadership in the AI industry.
Google, on the other hand, maintains a firm grip on the search industry with a staggering 92% global market share. While Microsoft’s Bing may pose a threat, unseating Google’s dominance won’t be an easy feat. To counter Microsoft’s AI initiatives, Google has been actively using AI to enhance its search engine. It recognizes the value of chatbots, which provide quick and direct answers to user queries. As a result, Google now provides text-based responses to traditional search queries, saving users valuable time. With its AI-focused improvements, Google experienced a 4.6% year-over-year growth in ad revenue in the second quarter, outpacing its Q1 growth rate.
In addition to search, Google Cloud has emerged as an impressive performer for Alphabet. With a growth rate of 28%, Google Cloud narrowly surpassed Microsoft Azure. While smaller in size, Google Cloud’s faster growth indicates an expansion of its market share. Alphabet boasts having the widest range of AI supercomputers in the industry, with over 80 AI models in its portfolio. The number of customers accessing these models has increased fifteen-fold between April and June. Notably, more than 70% of generative AI unicorns in Q2 were Google Cloud customers.
Investors don’t necessarily have to pick sides between Microsoft and Alphabet; both stocks offer unique strengths. Microsoft’s Azure cloud business is significantly larger than Google Cloud, while Alphabet provides investors with extensive exposure to digital advertising through Google Search and YouTube. However, one key factor separates the two stocks: valuation. Microsoft’s stock trades at a price-to-earnings (P/E) ratio of 34.8, while Alphabet offers investors a more affordable option with a P/E ratio of 27.9.
In conclusion, Microsoft and Alphabet are in a heated race for AI dominance. While Microsoft goes all-in with its integration of OpenAI’s technology, Google maintains its stronghold in the search industry. Investors have the opportunity to benefit from the unique strengths of both companies. However, Alphabet’s stock presents a relatively more affordable option based on its valuation. As the battle for AI supremacy intensifies, these tech giants will continue to shape the future of AI technology and innovation.
