With the release of ChatGPT’s current version in late 2022, OpenAI sparked increased investor interest in all things artificial intelligence (AI). Since then, two companies that have emerged as leaders in artificial intelligence (AI)—Microsoft (NASDAQ: MSFT) and Alphabet (NASDAQ: GOOG)—have defined the field and its uses. Microsoft and OpenAI are strong partners, and shortly after the release of ChatGPT, Alphabet unveiled Bard, their response to the chatbot.
Both Alphabet and Microsoft released Bard, their AI-powered Bing Chat, and they both released their October–December quarter earnings reports almost a year ago. On hearing the news, investors dumped both stocks, raising the possibility that the AI stock frenzy was overblown. Nevertheless, both businesses had strong results.
Examining each company’s most recent report, let’s determine which is the best AI stock to purchase right now.
Microsoft Reports Gains Across the Board
Microsoft’s profits demonstrate why the corporation recently overtook Apple as the most valuable company in the world. In fairness, the enterprise software company’s earnings from the previous quarter have slightly improved as a result of the closing of its acquisition of Activision Blizzard in October.
Microsoft’s fiscal 2024 second-quarter sales of $62 billion exceeded analyst projections of $61.14 billion, an 18% year-over-year increase. Operating income increased by 33% on an annual basis, or by 25% when measured against non-GAAP (generally accepted accounting principles). In terms of financial performance, profits per share (EPS) increased to $2.93, or 33% on an annual basis or 26% on a non-GAAP basis. That, too, exceeded projections.
Microsoft’s cloud business was once again a strength of the corporation; Azure revenue increased by 30% and its intelligent cloud segment rose by 20% annually. Bing Chat’s revenue growth from search and news advertising was just 8% year over year, which suggests that the company’s expectations were not met.
After hours, Microsoft ended the day with a 0.3% decrease.
Alphabet Performs Poorly on a Crucial Metric
Overall, Alphabet’s fourth-quarter fiscal 2023 report was strong as the business continues to bounce back from the downturn in the digital ad sector. After-hours trading saw a 6% decline in the stock price due to the revenue’s 13% year-over-year increase to $86.3 billion, which was higher than the consensus estimate of $85.3 billion. However, the ad revenue of $65.5 billion fell short of expectations.
The less-than-expected increase in ad revenue appeared to suggest that either Alphabet was losing market share to rivals or that AI hasn’t yet had a big enough influence on ad spending.
EPS increased from $1.05 to $1.64 on the bottom line as a result of a $2 billion improvement in equity securities. To $23.7 billion, operating income increased by 30%.
The ongoing instability in Google Network, whose revenue dropped once more, contributed to an 11% increase in ad revenue to $65.5 billion. Its second highly watched business area, Google Cloud, had a 26% growth to $9.2 billion and an operating income of $864 million, compared to a $186 million loss in the same quarter last year.
The Side-By-Side Analysis
Last year, the stock prices of Microsoft and Alphabet both experienced significant growth, and in the most recent quarter, both companies reported comparable increases in their top and bottom lines. When it comes to AI tactics, Microsoft seems to have the upper hand between the two firms.
The Office 365 suite, Azure, Bing, Github, and Azure are just a few of the products that the corporation has integrated its AI-powered Copilot into. Additionally, according to Microsoft management, AI was responsible for six percentage points of Azure revenue growth, or a rise from 24% to 30%. This is a noteworthy development that is probably going to get better.
Ultimately, Microsoft appears to have been better equipped for the AI revolution than Alphabet, as evidenced by its acquisition of Github, which integrated effectively with its AI Copilot tools, and its revolutionary investment in OpenAI.
Conversely, Alphabet only integrated Google Brain this year, despite having bought DeepMind, an AI research center, some years earlier. With regard to AI conversation, the parent company of Google has the technology to launch its own chatbot, but it chose to allow OpenAI and ChatGPT take the lead.
Why Microsoft is a superior option for buying AI stock
While Alphabet is not averse to artificial intelligence, the parent company of Google does not have the applications or strategy necessary to properly capitalize on generative AI, unlike Microsoft.
Conversely, Microsoft has made preparations for this eventuality and has taken calculated chances, such as forming an alliance with OpenAI. In addition, its product portfolio is substantially more varied than Alphabet’s, which derives the majority of its revenue from advertisements and hasn’t appeared to gain much from AI thus far.
Although Microsoft stock costs more than Alphabet stock does, it is the superior AI stock in this case. With the new technology, its long-term prospects remain far more hopeful.