Better tech stock: Microsoft vs. Alphabet

Tech stocks haven’t been easy over the past month as Wall Street grew weary of the near-term potential of sectors like artificial intelligence (AI) and chips. As a result, the tech rich Nasdaq Composite down about 10% since early July.

However, it is hard to overlook the industry’s long-term growth history. The same index has climbed 285% over the past decade, surpassing S&P 500178% increase. Technology remains a compelling market to invest in and hold for many years to come because it is driven by innovative companies that have continually pushed the boundaries. As a result, a recent selloff presents an interesting investment opportunity, with many stocks trading at better values.

There are two attractive options Microsoft (MSFT 0.83%) and Alphabet (GOOGL 1.01%) (GOOG 0.95%). These companies dominate their respective technology fields, 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 buyer.

Microsoft

Microsoft’s stock price has fallen 11% over the past 30 days, driven by a general decline in technology and mixed earnings.

The company reported its fourth-quarter 2024 earnings on July 30, revealing a 15% year-over-year increase in revenue, beating Wall Street expectations by about $260 million. Meanwhile, earnings per share (EPS) of $2.95 were $0.02 higher than anticipated. Microsoft’s earnings were generally positive, with all three main segments posting double-digit revenue and operating income growing 15% year-over-year.

However, an AI-focused Wall Street was disappointed by the company’s intelligent cloud segment, which posted revenue of $28.5 billion, $200 million ahead of analysts’ forecasts.

However, it wasn’t all bad news for Microsoft’s cloud division. The segment matched its biggest rival in cloud growth for the quarter Amazon Web Services (AWS) also posted a 19% year-over-year revenue increase. Meanwhile, sales of Microsoft Azure and other cloud services 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 than an all-out expansion. It has seen its stock rise 408% over the past 10 years. As a result, its stock remains a compelling buy for patient investors.

Alphabet

Alphabet is another company that has suffered a slide, falling 10% in the past month. Like Microsoft, the company had a generally positive quarter, but missed analysts’ forecasts by one point.

Google was among the first to release new earnings, posting Q2 2024 results on July 23. The quarter saw revenue rise 14% year-over-year, beating Wall Street estimates by $450 million, as EPS beat by $0.04. Alphabet’s Google Cloud segment beat expectations and its competitors, delivering 29% revenue growth. The growth has been 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 came in at $8.66 billion, versus expectations of $8.93 billion. However, overall Google advertising remains a profitable division, with revenue up 11% year-on-year thanks to sizable gains in Search.

Alphabet has become a tech giant in its 25 years of business, responsible for the popularity of several top brands, including YouTube, Google, Android and Chrome. Despite recent declines, its strong position in technology has seen its shares rise 90% over the past five years, alongside triple-digit earnings growth.

Is Microsoft or Alphabet the best tech stock in 2024?

Microsoft and Alphabet are easy companies to compare. Each is active in cloud computing, productivity software, AI and digital advertising. Meanwhile, both boast a spot in the world’s top five most valuable companies by market capitalization, illustrating their reliability as long-term growth stocks. Microsoft’s market capitalization topped $3 trillion this year, while Alphabet’s is just over $2 trillion.

Any of the stocks in these companies would likely prove to be assets if held over many years. As a result, it’s worth comparing their ratings to make a more informed decision about which is the best buy.

Data by YCharts.

This chart shows that Alphabet’s stock is trading at a significantly better value than Microsoft’s, with a much lower price-to-earnings (P/E) 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.

With a steadily expanding business and a solid role in technology, Alphabet is the better stock to buy right now.