Artificial intelligence (AI) stocks come in all varieties, but two of the biggest on the market are Microsoft (NASDAQ: MSFT) and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL). Both of these companies are known as AI hyperscalers, as they are rapidly building out the computing footprint necessary to handle a vast amount of AI workloads. This includes pouring hundreds of billions of dollars into capital expenditures to build out data centers to support AI.
But between the two, which is the better buy?
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Both companies have a variety of business units
Few companies get as large as Microsoft and Alphabet by just offering a handful of products. Both of these tech giants have countless offerings, including some overlap.
Microsoft is most famous for its business productivity tools, but it also has other platforms like LinkedIn and the Xbox ecosystem to diversify its main product lineup. Alphabet owns Google and YouTube, alongside many other platforms. However, the biggest overlap between these two is in the cloud computing space, which is also the biggest area where these two are seeing AI demand.
At its core, cloud computing involves building out excess computing resources, then renting that extra capacity back to customers. This is more convenient than on-premises hardware, as clients don’t have to maintain the equipment; they just rent it from Google Cloud or Microsoft Azure. Renting also allows clients to scale up or down easily without having to spend a ton of money up front on hardware. Countless AI start-ups are utilizing Azure and Google Cloud as places to build, train, and run AI models.
But which company has the better offering?
If you judge solely by growth rate, then it’s Google Cloud. In the first quarter, Google Cloud’s revenue rose 63% year over year, while Azure’s increased 40%. However, that doesn’t tell the full story. Alphabet also includes sales of its Tensor Processing Unit (TPU) computing chip in its Google Cloud segment results, so this is a boost that Azure doesn’t have. As a result, it’s difficult to directly compare how successful the core cloud computing units are. However, TPU sales are one advantage Alphabet does have over Microsoft, so I’m going to give this category win to Alphabet.
Winner: Alphabet
Each is seeing strong growth
Both companies recently announced relatively strong quarterly results. Alphabet’s overall revenue growth came in at 22%, with its operating income rising 30%. Microsoft’s quarter was slightly weaker, with revenue rising 18% and operating income increasing 20%.
