The technology sector is swiftly evolving to accommodate shifting consumer needs. Businesses are progressively integrating digital tools such as cloud computing, data analytics, Artificial Intelligence (AI), and the Internet of Things (IoT) to streamline operations and improve productivity.
According to the latest forecast by Gartner, worldwide IT spending is expected to total $5.06 trillion in 2024, an increase of 8% from the past year.
Furthermore, generative AI (genAI) has rapidly accelerated digital transformation across various industries, including healthcare, notably in fields like disease diagnosis, drug discovery, and tailored medical treatments. Additionally, there's a notable trend of leveraging AI to enhance customer service and support, exemplified by the deployment of chatbots and virtual assistants.
Considering such robust prospects, the artificial intelligence market is anticipated to grow at a CAGR of 28.5%, resulting in a market volume of $826.70 billion by 2030.
Against this backdrop, let’s compare two tech stocks, Alphabet Inc. (GOOGL) and Microsoft Corporation (MSFT), to analyze May’s performance.
The Case for Alphabet Inc. Stock
With a $2.17 trillion market cap, Alphabet Inc. (GOOGL) offers various products and platforms in the United States, Europe, the Middle East, Africa, the Asia-Pacific, Canada, and Latin America. It operates through Google Services, Google Cloud, and Other Bets segments.
GOOGL’s stock has gained 44.7% over the past year and 34.8% over the past nine months to close the last trading session at $174.99.
On May 2, 2024, GOOGL and MongoDB, Inc. (MDB) announced they were collaborating to optimize Gemini Code Assist to provide enhanced suggestions for application development and modernization on MongoDB, which is the industry-leading developer data platform that millions of developers and tens of thousands of customers rely on every day for business-critical applications.
Through this collaboration, Gemini Code Assist can help developers get answers and information about MongoDB code, documentation, and best practices so they can more quickly prototype new features and accelerate application development.
In terms of the trailing-12-month EBITDA margin, GOOGL’s 34.49% is 84.4% higher than the 18.70% industry average. Likewise, its 11.94% trailing-12-month CAPEX / Sales is 215.3% higher than the industry average of 3.79%. Moreover, its 17.31% trailing-12-month levered FCF margin is 114.5% higher than the 8.07% industry average.
For the fiscal first quarter that ended March 31, 2024, GOOGL’s revenues rose 15.4% year-over-year to $80.54 billion. Its operating income came in at $25.47 billion, up 46.3% over the prior year quarter. The company’s net income rose 57.2% year-over-year to $23.66 billion. In addition, its EPS rose 61.5% from the year-ago value to $1.89.
Analysts expect GOOGL’s revenue for the second quarter (ending June 2024) to increase 12.6% year-over-year to $84 billion. Likewise, its EPS for the same quarter is projected to grow 27.8% year-over-year to $1.84. Moreover, the company has topped consensus revenue and EPS estimates in each of the trailing four quarters, which is excellent.
GOOGL’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
GOOGL’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, translating to a Buy in our proprietary rating system.
The stock has an A grade for Sentiment and a B for Quality. GOOGL is ranked #10 out of 52 stocks in the B-rated Internet industry.
In addition to the POWR Ratings I’ve just highlighted, you can see GOOGL’s ratings for Growth, Momentum, Stability, and Value here.
The Case for Microsoft Corporation Stock
Valued at $3.20 trillion by market cap, Microsoft Corporation (MSFT) is a technology giant that develops and supports software, devices, and solutions globally. The company operates through Productivity and Business Processes; Intelligent Cloud; and More Personal Computing segments.
MSFT’s stock has gained 34.4% over the past nine months to close the last trading session at $430.16. Over the past year, the stock has surged 37.1%.
On May 20, 2024, MSFT partnered with Coursera, Inc. (COUR), introducing four new entry-level Professional Certificates designed to prepare learners for jobs poised for exponential growth over the coming decade. These certificate programs equip learners with the essential skills to start a new career in just a few months, without the prerequisite of a college degree or prior work experience.
On May 8, 2024, MSFT announced a broad investment package designed to strengthen the role of Southeast Wisconsin as a hub for AI-powered economic activity, innovation, and job creation.
These investments include $3.3 billion in cloud computing and AI infrastructure, the creation of the country's first manufacturing-focused AI co-innovation lab, and an AI skilling initiative to equip more than 100,000 of the state's residents with essential AI skills.
MSFT’s trailing-12-month gross profit margin of 69.89% is 40.8% higher than the industry average of 49.63%. Likewise, its trailing-12-month EBIT margin of 44.70% is 854.3% higher than the industry average of 4.68%. However, the stock’s trailing-12-month asset turnover ratio of 0.55x is 10.8% lower than the industry average of 0.61x.
During the third quarter, which ended March 31, 2024, MSFT’s total revenue increased 17% year-over-year to $61.86 billion. Its operating income came in at $27.60 billion, up 23% from the prior year’s quarter. Its net income rose 19.9% from the year-ago value to $21.94 billion.
However, the company’s cash outflow from investing activities grew 228.2% from the prior year’s period to $10.70 billion. As of March 31, 2024, MSFT’s cash and cash equivalents amounted to $19.63 billion, down from $34.70 billion as of June 30, 2023.
Street expects MSFT’s revenue for the fourth quarter (ending June 2024) to increase 14.6% year-over-year to $64.39 billion. The company’s EPS is estimated to grow 9% year-over-year to $2.93 for the same quarter. Moreover, the company has topped consensus revenue and EPS estimates in each of the trailing four quarters.
MSFT’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall C rating, translating to a Neutral in our proprietary rating system.
MSFT’s POWR Ratings reflect its mixed outlook. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
MSFT has a C grade for Growth and Momentum. It is ranked #21 among 44 stocks in the Software - Business industry.
Click here for the additional POWR Ratings for MSFT (Value, Stability, Quality, and Sentiment).
AI Tech Stock May Performance Analysis: Alphabet (GOOGL) vs. Microsoft (MSFT)
The global technology sector prospers due to extensive automation, significant investments in digitization projects, and the incorporation of sophisticated technologies such as Generative AI. The emergence of AI has been a pivotal point of innovation, reshaping the contours of industries worldwide, thus propelling growth in the tech industry.
Leading tech companies GOOGL and MSFT stand to capitalize on the optimistic industry outlook. However, GOOGL’s strong financial performance, higher profitability, and promising near-term outlook favor it as the better tech stock pick.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy or Buy. View all the top-rated stocks in the Internet industry here and Software - Business here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
MSFT shares were trading at $430.16 per share on Monday afternoon, up $3.16 (+0.74%). Year-to-date, MSFT has gained 14.81%, versus a 11.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
AI Tech Stock May Performance Analysis: Alphabet (GOOGL) vs. Microsoft (MSFT) StockNews.com
