Microsoft (MSFT) vs. Alphabet (GOOGL): Which 'Magnificent Seven' Stock is the Better

July 31, 2024 04:51 PM PDT | By Team Kalkine Media

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Microsoft (MSFT) vs. Alphabet (GOOGL): Which 'Magnificent Seven' Stock is the Better — Image source: Shutterstock

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Highlights:

Impressive Growth and Market Position: Microsoft (MSFT) has demonstrated strong financial performance and innovation, leading to a 879.8% return over the last decade. The company's early investment in AI and the rapid growth of its cloud platform, Azure, have significantly contributed to its market dominance, with MSFT stock gaining 11.3% year-to-date.

Robust Financials: In the fourth quarter of fiscal 2024, Microsoft reported a 21% increase in cloud revenue, with all segments showing double-digit growth. The company's overall revenue for the fiscal year increased by 16%, and earnings rose by 22%. Microsoft's cash reserves total $75.5 billion, and it distributed $8.4 billion in dividends.

Positive Future Outlook: Analysts forecast continued growth for Microsoft, with expected revenue increases of 13.7% in fiscal 2025 and 14.9% in fiscal 2026. Earnings are projected to rise by 10.3% in 2025 and 18.1% in 2026, reflecting confidence in the company's sustained expansion and profitability.

The "Magnificent Seven" stocks have dominated headlines since the artificial intelligence (AI) frenzy began. This elite group includes major U.S. technology companies Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), Tesla (NASDAQ:TSLA), Meta Platforms (NASDAQ:META) (formerly Facebook), Google's parent company Alphabet (NASDAQ:GOOGL), and Nvidia (NASDAQ:NVDA).

Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) are among the world's most well-known and influential technology companies. With the integration of AI into their products, both are experiencing explosive growth and may continue to thrive for years to come. While it's challenging to determine which of these two is the "best," let's review their recent quarterly performances.

The Case For Microsoft

Microsoft Corporation (NASDAQ:MSFT) has consistently evolved and expanded its product offerings, maintaining its dominance in the technology industry. Microsoft stock is widely regarded as a solid investment due to the company's strong financial performance, strategic acquisitions, and ongoing innovation. Over the last decade, MSFT stock has delivered an impressive 879.8% return.

With a market capitalization of $3.14 trillion, MSFT stock has gained 11.3% year-to-date (YTD), compared to the Nasdaq Composite's ($NASX) gain of 17.2%.

Microsoft gained an early-mover advantage in AI by investing in OpenAI in 2019. The company extended this partnership in 2023, integrating AI into its flagship products.

Microsoft's strong financial performance can be attributed to its diverse product portfolio, with the cloud being a significant driving force. The global cloud computing market is expanding rapidly, and Azure is one of the leading cloud platforms globally, competing with Amazon’s AWS (Amazon Web Services) and Alphabet’s Google Cloud.

In the fourth quarter of fiscal 2024, Microsoft Cloud revenue increased by 21% to $36.8 billion, with all three segments showing double-digit growth. The Intelligent Cloud segment grew 19% year-over-year and accounted for 44% of the total revenue of $64.7 billion in the quarter. Management noted that Azure AI now serves over 60,000 customers.

Similarly, the Productivity and Business Processes segment (which includes Dynamics 365, Office products, Microsoft 365, LinkedIn, and others) reported an 11% revenue increase. The More Personal Computing segment, which includes Windows commercial products and Xbox, increased by 14% during the quarter. Adjusted earnings rose 10% year-over-year to $22 billion.

For fiscal year 2024, revenue increased by 16%, while earnings rose by 22%. The company's cash, cash equivalents, and short-term investments totaled $75.5 billion, with long-term debt at $42.6 billion. Microsoft also distributed $8.4 billion in dividends.

Currently, MSFT stock is trading at a premium, with a forward price-to-earnings (P/E) ratio of 32.5x for fiscal 2025 earnings and a forward price-to-sales (P/S) ratio of 11.2x.

Here's what analysts forecast for Microsoft’s financial performance over the next two years:

In fiscal 2025, revenue is expected to increase by 13.7%, and earnings by 10.3%.
In fiscal 2026, revenue is expected to increase by 14.9%, and earnings by 18.1%.

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