After starting ChatGPT, microsoft (MSFT -0.17%) and alphabet (GOOG 0.21%) (Google 0.04%) They emerged as top rivals and the battle continued. Microsoft is partnering with his OpenAI, the parent company of ChatGPT, while Alphabet is looking to challenge its leadership with products such as Bard and later Gemini. So which artificial intelligence (AI) stocks are better to buy?
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Microsoft beat the competition
Jeremy Bowman (Microsoft): The question of whether to build or buy is a common one in the technology world, but Microsoft and Alphabet are moving in very different directions with generative AI.
Microsoft has tied up its fortunes in ChatGPT’s parent company, OpenAI, through a reported $13 billion investment, essentially allowing Microsoft to use OpenAI’s technology as its own. As a result, the tech giant has been able to implement OpenAI’s technology in products such as Azure cloud infrastructure services, GitHub code repositories, Office productivity suites, and the Bing search engine.
These moves are already having an impact, with Microsoft saying AI added 6 percentage points to Azure growth in the most recent quarter.
Microsoft’s diversification also serves as a competitive advantage here. Unlike Alphabet, which derives the majority of its revenue from search ads, Microsoft has a wide range of products across enterprise software, video games, cloud computing, social media, and more, giving it even more opportunities to harness the power of AI. There is. .
Microsoft is also more active in AI than Alphabet. It seems like CEO Satya Nadella has been planning this moment for years, ever since Microsoft first invested in him in 2019.
Alphabet has also been investing in AI for several years, but the company has been reluctant to release new products, and when they do, they don’t always do well. Bard’s initial presentation was widely criticized for being sloppy, and Gemini has been criticized for historical inaccuracies.
Microsoft has no plans to slow down in AI. It just hired Mustafa Suleyman, co-founder of Deepmind and co-founder of the recently shuttered Inflection AI. Microsoft stock may be expensive, but it’s worth trading at a premium. Capturing an AI leader will be difficult.
Alphabet’s moonshot approach to reinventing technology
Anders Byland (Alphabet): I have nothing but respect for Microsoft, but Redmond’s best companies can’t match Alphabet’s ultimate long-term plans.
Alphabet’s forward-thinking approach and unwavering commitment to pushing the boundaries of innovation make it an attractive choice for investors seeking long-term growth. The company’s core businesses, online search and Google-branded advertising, dominate the search engine market. But Alphabet’s ambitions go far beyond search, as it continues to invest in cutting-edge technologies that have the potential to reshape entire industries.
One such area is artificial intelligence, where Alphabet’s research and development efforts have resulted in breakthrough advances. From natural language processing to computer vision, Alphabet’s AI technology has applications in everything from healthcare research to self-driving cars.
Additionally, Alphabet’s commitment to Moonshot projects through its X division demonstrates the company’s willingness to take calculated risks in pursuit of breakthrough innovation. Projects like Intrinsic, Alphabet’s industrial robot project, and Loon, which aims to provide internet access to remote areas via high-altitude balloons, exemplify the company’s bold vision and long-term thinking. Masu.
Simply put, Alphabet is ready for the evolution of the technology market. Additionally, the stock is much more affordable than Microsoft, whose stock has soared thanks to its deep partnership with OpenAI. You can currently buy Alphabet stock at a reasonable price of 6 times sales, or 27 times free cash flow. To estimate Microsoft’s ratio, double these numbers.
The way I see it, Microsoft stock appears to be past the point of correction while Alphabet is gearing up for a rally. It’s an easy choice.
Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Anders Bylund has a position in his Alphabet. Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Microsoft. The Motley Fool recommends the following options: His January 2026 $395 long call on Microsoft and his January 2026 $405 short call on Microsoft. The Motley Fool has a disclosure policy.
