Better technology stocks: Microsoft vs. Alphabet

Technology stocks have had a rough time of it over the past month as Wall Street has become too keen on the near-term potential of sectors such as artificial intelligence (AI) and chips. As a result, the tech rich Nasdaq-Composite has fallen by about 10% since the beginning of July.

However, the long-term growth story of the industry is hard to ignore. The same index rose 285% over the last decade, outperforming the S&P500s rise of 178%. The technology market remains an attractive market to invest in and hold for many years as it is driven by innovative companies that have relentlessly pushed the boundaries. Therefore, a recent sell-off presents an exciting investment opportunity as many stocks trade at better values.

Two attractive options are Microsoft (MSFT 0.83%) And alphabet (GOOGL 1.01%) (GOOG 0.95%)These companies dominate their respective technology areas and offer investors access to some of the fastest growing industries.

So let’s take a closer look at these companies and find out whether Microsoft or Alphabet is the better buying decision.

Microsoft

Microsoft’s share price has fallen 11% over the past 30 days, reflecting a general slowdown in the technology sector and mixed earnings.

The company reported its fourth-quarter 2024 results on July 30, posting a 15% year-over-year increase in revenue, beating Wall Street expectations by about $260 million. At the same time, earnings per share (EPS) came in at $2.95, $0.02 above expectations. Microsoft’s earnings were positive overall, with all three major segments posting double-digit revenue gains and operating profit increasing 15% year-over-year.

However, artificial intelligence-focused Wall Street was disappointed by the company’s Intelligent Cloud segment, which reported revenue of $28.5 billion, $200 million below analyst forecasts.

But it wasn’t all bad news for Microsoft’s cloud division. The segment was able to keep up with its biggest competitor in terms of cloud growth during the quarter, with Amazon Web Services (AWS) also saw revenue increase 19% year-over-year. At the same time, revenue from Microsoft Azure and other cloud services increased 29% in the quarter.

The most important takeaway from Microsoft’s latest quarter is the long-term reliability of its business. The company’s development has always been slow rather than all-in-one. The company’s share price has risen 408% over the past 10 years, so the stock remains an attractive buy for patient investors.

alphabet

Alphabet is another company whose stock price fell 10% in the last month. Like Microsoft, the company had an overall positive quarter but missed analysts’ forecasts on one point.

Google was one of the first to release new results, reporting its Q2 2024 results on July 23. In the quarter, revenue increased 14% year over year and beat Wall Street estimates by $450 million, with earnings per share beating by $0.04. Alphabet’s Google Cloud segment beat expectations and those of its competitors, posting a 29% increase in revenue. The growth was promising as the company works to catch up with Microsoft and Amazon in this space by expanding its AI offerings.

Second-quarter 2024 results were positive, but advertising revenue on YouTube fell short of expectations. Segment revenue reached $8.66 billion versus expectations of $8.93 billion. However, overall Google advertising remains a lucrative business line, with revenue up 11% year-over-year thanks to significant gains from search.

Alphabet has grown into a technology giant over its 25 years of existence, responsible for the popularity of several leading brands such as YouTube, Google, Android and Chrome. Despite recent declines, its strong position in the technology sector has seen its shares rise 90% over the past five years, with earnings growing by triple digits.

Is Microsoft or Alphabet the better technology stock in 2024?

Microsoft and Alphabet are easily comparable companies. They are both active in cloud computing, productivity software, AI and digital advertising. At the same time, they both occupy a place among the five most valuable companies in the world by market capitalization, which underscores their reliability as long-term growth stocks. Microsoft’s market capitalization exceeded $3 trillion this year, while Alphabet’s is just over $2 trillion.

The shares of both companies would likely prove to be assets if held for many years, so it is worth comparing their valuations to make a more informed decision on which is the better buy.

Data from YCharts.

This chart shows that Alphabet’s stock is trading at a significantly better price than Microsoft’s, with a far lower price-to-earnings (P/E) and price-to-sales (P/S) ratio. In addition, Alphabet’s P/E and P/S ratios are below their 10-year averages, while Microsoft’s are higher on both metrics.

With a steadily growing business and a solid role in the technology sector, Alphabet is currently the better stock to buy.