Tech stocks have soared since early last year.of Nasdaq-100 The index rose 67% in 2023, a significant improvement from the previous year’s 40% plunge.
The economic downturn in 2022 caused a market-wide decline, impacting countless tech stocks. But thanks to the artificial intelligence (AI) boom, Wall Street is once again bullish on the industry. OpenAI’s launch of his ChatGPT has reinvigorated interest in AI, making it a key growth driver in the technology market recovery.
The AI market reached nearly $200 billion last year and is expected to grow at a compound annual growth rate of 37% through 2030, according to data from Grand View Research. It is also receiving tailwinds from several other high-growth sectors, including cloud computing and virtual reality. , Now is the perfect time to invest in technology.
As two of the largest companies in the industry, alphabet (GOOG -1.22%) (Google -0.95%) and microsoft (MSFT 0.45%) An attractive option. These companies have a reputation for delivering consistent returns over the long term and are investing heavily in AI.
So let’s compare these two tech giants and decide whether Alphabet or Microsoft is the better tech stock right now.
alphabet
Alphabet has become a tech giant, attracting billions of users to products such as Android, YouTube, Chrome, and many products under the Google umbrella.
The popularity of these services has given Alphabet the top share of the digital advertising market with 25%. Advertising has been the company’s biggest growth driver, accounting for nearly 80% of total revenue.
But the tech giant’s expansion of its AI efforts over the past year has drawn attention. The company impressed by debuting Gemini toward the end of 2023, a large-scale language model that is likely to make Alphabet more competitive against cloud rivals Microsoft and Microsoft. Amazon.
However, Google’s stock price has fallen nearly 10% in the last month following Gemini’s disappointing announcement. A recent Alphabet presentation of their new AI model revealed that Gemini inaccurately portrayed historical figures and failed to recognize important differences from other notable figures. Ta.
The blunder forced Alphabet to take its AI imaging service offline while it resolved the issue.
Despite recent headwinds, Alphabet generated nearly $70 billion in free cash flow last year. The company has a mountain to climb to get its AI technology off the ground and keep up with competitors, but it is financially secure and has the funds to continue investing in its business.
microsoft
Like Alphabet, Microsoft also has a number of powerful brands including Windows, Office, Xbox, Azure, and LinkedIn. The company has leadership positions across technology, with these brands giving it roles in operating systems, productivity software, cloud computing, and even social media.
The company’s stock price has increased 65% in the past 12 months, and recently apple It is the world’s most valuable company, with a market capitalization of just over $3 trillion.
Microsoft has attracted investors by becoming one of the biggest players in the AI space. A significant investment in ChatGPT developer OpenAI has resulted in a lucrative partnership and access to some of the most advanced AI models in the industry.
Windows uses OpenAI technology to bring AI capabilities across its product lineup. In 2023, Microsoft added new AI tools to its Azure cloud platform, integrated aspects of ChatGPT into the Bing search engine, and improved productivity for its Office software suite by adding AI capabilities.
Microsoft delivered more than $67 billion in free cash flow last year, underscoring the business’ credibility and value as a long-term investment.
Which is a better tech stock: Alphabet or Microsoft?
Alphabet and Microsoft each hold dominant positions in the technology space, and are likely to be assets to any portfolio over the long term.
However, based on earnings per share estimates, Microsoft may have slightly higher stock price growth potential than Alphabet in the near term.
Data by YCharts
The table shows that Microsoft’s earnings could reach nearly $16 per share over the next two fiscal years, while Alphabet’s earnings could reach nearly $9 per share. . Multiplying these numbers by the companies’ forward price/earnings ratios (35x for Microsoft and 20x for Alphabet) yields a stock price of $546 for Microsoft and $182 for Alphabet.
Considering both companies’ current positions, these projections would see Microsoft’s stock price rise 32% and Alphabet’s 30% by 2026.
The difference is not that big. However, Microsoft’s higher growth potential and more reliable position in the AI space make it a better tech stock than Alphabet right now.
Suzanne Frey, an Alphabet executive, is a member of the Motley Fool’s board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Dani Cook has no position in any stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, 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.
