Google Has the All-Important AI Edge Over Microsoft
Microsoft ( MSFT) and Alphabet ( GOOGL) are eerily similar equities, having slumped exactly the same amount this year, having similar growth profiles, and identical market capitalizations and valuations.
Which do you choose?
Both are excellent companies, and a credible case can be made for either. When one strips away the differences in their lines of revenue -- operating system software versus advertising, for example -- it comes down to dominance in the software ecosystem. And in that regard, both Microsoft and Alphabet have powerful cloud computing operations that provide each with leadership in the most important category of computing software today, machine learning.
But Alphabet's Google unit arguably has the upper hand on Microsoft in a couple of ways.
At $751 billion in market capitalization, Microsoft topped Google's market cap, $707 billion, back in September of this year, holding onto a 13% gain for the year, while Alphabet is down about 4%. The forward price-to-earnings multiple for the two is similar, with Microsoft being slightly cheaper, at 19 times versus Alphabet at 22 times. Both are rather expensive relative to the overall market, obviously. Google has the edge on revenue growth, with 19% projected for 2019, versus 11% for Microsoft's fiscal 2020 revenue growth.
The difference between the two comes down to what's going on in those cloud operations. Microsoft has scale, but it may not have the more important relative position with developers.
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