Clash of AI Giants: Microsoft or Alphabet for Long-Term Exposure?
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Clash of AI Giants: Microsoft or Alphabet for Long-Term Exposure?

Although Microsoft has shown greater agility, Google could catch up.
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

According to Indeed’s report on job postings at the end of 2023, software development, IT, mathematics, and finance had the most significant year-over-year decline, ranging from 44.8% to 32.2%. This signals that the automation of white-collar jobs is taking root.

While experts in these fields will always be needed, much of entry-level to mid-tier work is heading for replacement by artificial intelligence (AI) agents. In April 2023, Goldman Sachs forecasted that up to two-thirds of jobs could be somewhat AI-powered. 

And as manual labor shifts to AI, the global AI market size is projected to add up to $4.4 trillion in value, according to McKinsey & Company. Investors now have to decide which AI exposure they prefer in that growth?

On the infrastructural side, Nvidia (NASDAQ: NVDA) and AMD (NASDAQ: AMD) are vying to establish AI chip dominance. However, on the software services and AI integration side, two Big Tech giants—Google (NASDAQ: GOOG) and Microsoft (NASDAQ: MSFT) — are vying for AI supremacy.

Why Microsoft (MSFT)?

The company’s legacy software was enhanced with the launch of Microsoft Copilot. According to 6sense, Microsoft’s Office 365 productivity suite has an estimated 23.58% market share, with Microsoft Excel alone at 10.42%.

More importantly, the company developed Microsoft Graph and Fabric to facilitate training AI models. Graph allows developers to utilize Microsoft services in LLM training while integrating their products into the broader Microsoft ecosystem; fabric is an all-in-one analytics platform for various uses, from business intelligence to data science.

Underlying Microsoft’s ecosystem is its take on cloud computing – Azure. Specifically, Azure OpenAI seamlessly facilitates the integration of ChatGPT 3.5 and later versions via plugins. They range from generative images through Bing to Azure SQL and Microsoft Translator.

Azure’s market share in cloud computing has steadily grown over the years. Synergy Research Group estimated that three companies—Amazon (AWS), Microsoft (Azure), and Alphabet (Google Cloud )—shared 66% of the global cloud in Q3 2023: Azure, AWS, and Microsoft (Azure). However, as Azure is closing with AWS at 23% vs. 32% market share, respectively, Google Cloud is in distant third place at 11%.

Why Alphabet (GOOGL)?

Google’s mainstream entry into the AI model space with Gemini became a big flop. The company revealed that it prioritizes ideological conditioning of its AI service over the user experience and accuracy. This was not surprising, however, as Google workers had previously described Bard (rebranded Gemini) as “worse than useless” and a “pathological liar.”

But if this was known, and Gemini was rolled out anyway, it indicates to investors a clear lack of leadership. Former Google employee Diane Hirsch Theriault criticized  CEO Sundar Pichai as having “lack of visionary leadership” while facilitating an atmosphere of nihilism.

Likewise, that Google “has not launched one single successful executive-driven thing in years”. Nonetheless, the Google ecosystem is expansive, as G Suite holds an estimated 68.66% market share. The generous Google Drive storage space and productivity software comparable to Microsoft’s make a strong base for AI integration.

Now known as Google Workspace and Duet AI (Gmail and Docs), Gemini (Ultra 1.0) is heading for broad ecosystem integration. Yet, it remains to be seen if Google’s present corporate culture and ideological commitments will sabotage this rollout. 

Microsoft and Alphabet’s Latest Earnings

For Q1 2024 earnings in April, Alphabet reported $23.6 billion net income vs. $15 billion in the year-ago quarter, a 57.3% profit boost. For FY24 Q3 in April, Microsoft reported a 20% net income boost at $21.9 billion.

In the cloud arena, Microsoft reported continued Azure gains, with revenue growing by 23% to $35.1 billion year over year. While having a significantly smaller market share, Google Cloud outpaced Azure’s revenue growth at $9.5 billion vs. $7.4 billion in a year-ago quarter, representing a 28% increase. 

The bottom line is that Microsoft and Alphabet will likely establish an AI services duopoly, mirroring the dynamic between Nvidia and AMD regarding discrete GPU cards. So far, Microsoft has had a head start with fewer embarrassing errors.

What Do Analysts Forecast?

Based on Nasdaq’s forecast aggregation, the average MSFT price target twelve months ahead is $489 vs the current $400 per share. The average GOOGL price target is $191 vs the current $167 per share. In other words, analysts expect Microsoft (MSFT) stock to appreciate by 22% while Alphabet (GOOGL) is expected to appreciate by 14%.

Microsoft’s market cap is significantly larger than Alphabet’s, at nearly $3 trillion vs. $2 trillion, so the market sentiment is clearly in Microsoft’s favor. However, if Google’s leadership undergoes restructuring, this could shift quickly. 

Do you think corporate AI will be degraded in quality and ability for “AI safety”? Let us know in the comments below.

Disclaimer: The author does not hold or have a position in any securities discussed in the article.