MSFT vs. GOOGL: Which ‘Magnificent Seven’ Stock Is a Better Buy?

The “Magnificent Seven” stocks have dominated headlines since the artificial intelligence (AI) craze began. The list includes major U.S. technology companies: Amazon (AMZN), Microsoft (MSFT), Apple (AAPL), Tesla (TSLA), Meta Platforms (META) (formerly Facebook), Google parent Alphabet (GOOGL) and Nvidia (NVDA).

Microsoft and Alphabet are among the most well-known and influential technology companies in the world. By incorporating AI into their products, both companies are experiencing explosive growth and could continue to thrive for years to come. While it’s hard to say which one is “best,” let’s take a look at how both have performed in recent quarters.

A Case for Microsoft

Microsoft Corporation (MSFT) has consistently evolved and expanded its product offerings to dominate the technology industry. Microsoft stock has long been considered a solid investment choice due to the company’s strong financial performance, strategic acquisitions, and constant innovation. Over the past decade, MSFT stock has delivered an eye-catching return of 879.8%.

MSFT shares are valued at $3.14 trillion, up 11.3% year over year, while the Nasdaq Composite Index ($NASX) is up 17.2%.

Microsoft gained first-mover advantage in AI after investing in OpenAI in 2019. The company expanded that partnership in 2023 and integrated AI into its flagship products.

While the company’s strong financial performance can be attributed to its diverse product portfolio, Microsoft’s driving force is cloud computing.

The global computing market is growing rapidly. Azure is one of the leading cloud platforms in the world, competing with Amazon AWS (Amazon Web Services) and Alphabet Google Cloud.

In the fourth quarter of fiscal 2024, Microsoft Cloud revenue grew 21% to $36.8 billion. All three segments showed double-digit growth. The Intelligent Cloud segment grew 19% year over year and accounted for 44% of total revenue of $64.7 billion in the quarter. Management said Azure AI now serves more than 60,000 customers.

Similarly, the Productivity & Business Processes segment (comprising Dynamics 365, Office products, Microsoft 365, LinkedIn and others) saw revenue grow 11%. The More Personal Computers segment, comprising commercial Windows and Xbox products, grew 14% during the quarter. Adjusted earnings rose 10% year over year to $22 billion.

Revenue rose 16% in fiscal 2024, while profits rose 22%. The company’s cash, cash equivalents, and short-term investments totaled $75.5 billion, while its long-term debt came in at $42.6 billion. It also paid $8.4 billion in dividends.

MSFT shares are currently trading at a premium of 32.5 times projected fiscal 2025 earnings and 11.2 times projected sales.

Here are analysts’ forecasts for Microsoft’s financial results over the next two years:

• In fiscal year 2025, revenues are expected to increase by 13.7% and profits by 10.3%.

• In fiscal 2026, revenues are expected to increase by 14.9% and profits by 18.1%.

What does Wall Street say about Microsoft?

Overall, Wall Street rates Microsoft stock a “Strong Buy.” Of the 38 analysts covering MSFT, 34 rate it a “Strong Buy,” three recommend a “Moderate Buy,” and one suggests a “Hold.”

The average price target is $501, implying about 20% potential upside from current levels. Additionally, the Street-high price target is $600, implying a 43.4% upside over the next 12 months.

The alphabet case

Alphabet (GOOGL) is the parent company of Google. The company, like Microsoft, has maintained a strong position in the technology industry thanks to its legacy portfolio. GOOGL stock has seen a significant increase in value thanks to the company’s dominance in search and advertising, as well as its strategic diversification.

GOOGL stock is valued at $2.1 trillion, up 22.8% year over year, outperforming the Nasdaq Composite, an index of technology companies.

Google is the most popular search engine in the world, with a market share of about 91.06%. Other search engines, including Microsoft’s Bing, have failed to challenge its dominant position.

Google search revenue grew 13.8% year-over-year to $48.5 billion in the second quarter of 2024. This represented 65% of total revenue.

Google Cloud is also the company’s fastest-growing segment, competing with AWS and Azure. It grew 28.7% in the second quarter to $10.3 billion. Advertising also accounts for a significant portion of total revenue. While the advertising market struggled in 2022, it has shown signs of improvement since last year. Alphabet’s ad sales totaled $64.6 billion, up 11.1% year over year.

Alphabet is the dominant player in digital advertising, according to BCC Research. It could continue to thrive in a market that’s expected to be worth $1.3 trillion by 2027, thanks to AI. While AI has long been a part of Google products, from Gmail to Google Maps, the company has struggled to compete with Microsoft and OpenAI in the AI ​​race.

But given Alphabet’s strong financial position and the abundance of resources at its disposal, the company is more than capable of raising the stakes. It ended the second quarter with $110.9 billion in cash, cash equivalents, and marketable securities, with long-term debt of $13.2 billion. The company also generated $13.4 billion in free cash flow during the quarter.

GOOGL stock is currently valued at 22.2x estimated 2024 earnings and 6.04x estimated sales.

Here are analysts’ forecasts for Alphabet’s financial results for the next two years:

• In 2024, revenues are expected to increase by 12.9% and profits by 31.9%.

• In 2025, revenues are expected to increase by 11.1% and profits by 13.8%.

What does Wall Street say about Alphabet?

Overall, Wall Street rates GOOGL stock as a “Strong Buy.” Of the 44 analysts covering GOOGL, 34 rate it a “Strong Buy,” three recommend the stock as a “Moderate Buy,” and seven suggest it is a “Hold.”

The average price target is $204.47, implying about 19.2% potential upside from current levels. Additionally, the Street-high price target is $240, implying a 40% upside over the next 12 months.

Which Magnificent 7 Stock Is a Better Buy?

Microsoft’s strong financial performance, strategic acquisitions, ongoing innovation, and dedication to shareholder returns make it a reliable and attractive investment opportunity. Similarly, Alphabet’s dominant market position in search, diverse revenue streams, and brand value make it a safe bet for investors seeking growth and stability.

Both companies have proven their worth and have bright futures ahead of them. Both are excellent long-term investments in my opinion. However, if I had to choose one, I would choose Alphabet because it is a reasonable buy right now.

On the date of publication, Sushree Mohanty did not hold (directly or indirectly) a position in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. For more information, please refer to Barchart’s Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.