Microsoft (NASDAQ: MSFT) and Alphabet (NASDAQ: GOOG) are two of the biggest players in the world of generative AI. The former is the 50% owner of OpenAI, the developer of ChatGPT, while the latter owns a number of AI-powered products including Google Search, Google Suite, and Gemini, which is its take on the language models most of the public think of when they hear the word “AI.”
Microsoft and Alphabet both have their strengths. Microsoft has the second most popular cloud computing service after Amazon’s AWS, while Alphabet has seven products with over a billion users each. Together, they account for over half the time people spend interacting with generative AI worldwide. In this article, I will explore Microsoft and Google side by side so you can decide which is the better AI stock for you.
The case for Microsoft
The main thing Microsoft has going for it in AI is a first mover’s advantage. After ChatGPT launched in November of 2022, MSFT quickly saw the value in the product and bought 50% of OpenAI, its developer. Almost as swiftly, it built GPT into its Bing Search Engine, which augmented ChatGPT’s pre-trained database with the ability to search the web. With Bing search, you can easily get AI-written responses to questions about the day’s news. That was something not even ChatGPT was capable of!
Eventually, some issues with Bing’s “web search approach” became apparent. For example, it was more prone to producing incorrect answers than ChatGPT was. However, it was impressive, and Microsoft leveraged its functionality to justify raising the price of Office 365 enterprise by $30 per month. So, Microsoft made some money off of AI very early on. Few other big tech companies can claim to have been that quick to the punch.
The case for Alphabet
The main case for Alphabet over Microsoft is the fact that its product strategy is more coherent. It has not directly monetized its Chatbot like Microsoft has, but it has a well-known consumer-facing suite of products, all of which integrate with each other. For example, Youtube shows you ads based on your Google search history, and Android has all the Google apps built in. AI has long been part of Google’s Youtube, being used to recommend videos and moderate comments, among other things. The company also broke new ground in developing the AI technologies that were later used in ChatGPT, such as transformers. Finally, its stock is much cheaper than Microsoft’s, trading at 26 times earnings to MSFT’s 35. On the whole, I prefer Google stock to MSFT, mainly because it’s easier to analyze and cheaper while having comparable growth and margins.
A Canadian big tech giant
If you’re looking for a Canadian big tech stock to rival Microsoft and Alphabet, you could consider Shopify Inc (TSX: SHOP). Shopify is a Canadian e-commerce company that develops a platform for hosting online stores. Unlike Amazon’s vendors, Shopify vendors own their websites; they just rely on Shopify for some of the functionality. Shopify uses generative AI to create product descriptions and automate customer service. It recently became profitable after years of losing money and is growing its revenue at 23% year over year.
