Is Microsoft Stock A Smarter Buy Than Google After Its Massive 250% Rally

Is Microsoft Stock A Smarter Buy Than Google After Its Massive 250% Rally?

Alphabet's (GOOG) stock is up by over 250% since the beginning of 2023. That's great for Google. But wait a minute, Microsoft's (MSFT) stock is up a meager 56% during the same period. Hard to believe, but Alphabet's stock is up more than 4x Microsoft's stock. This, despite the fact that Microsoft's revenue growth for the 2023-2025 period stood at 44%, compared to just 31% for Google. Does that make sense? We don't think it does, and believe Microsoft presents a compelling valuation at current levels. See how Microsoft's growth and margins compare to its peers, including GOOG, AMZN, and META.

Sure, Google's profit margins (net income as a percentage of sales) are healthy at 33% versus an impressive 39% for Microsoft, making it even harder to explain the 4x growth in Google's stock when compared to Microsoft. Alphabet's P/E is also noticeably higher at 29x based on its current market price and TTM EPS, while Microsoft's sits at a more attractive 23x.

How Do The Core Businesses For Google And Microsoft Compare?

Let's look at the core business prospects a bit more closely. Google still has massive advertising exposure, with ad revenues driving the vast majority of its business, bringing in $82.3 billion in its most recent quarter. This leaves it highly vulnerable if broader consumer discretionary spending were to decline.

On the flip side, businesses of all stripes are heavily focused on operational efficiency right now. Because of this, Microsoft's enterprise cloud services, which companies rely on to maintain and scale their core digital infrastructure, hold up much stronger than the broader market realizes. In its latest quarter, Microsoft's Intelligent Cloud segment posted $32.9 billion in revenue, driven by Azure's explosive 39% growth. This sustained cloud momentum is precisely what we detail in our separate analysis on Microsoft Stock's Path To $450.

In addition, while Alphabet looks formidable with Google Cloud pulling in $17.7 billion in the latest quarter (a strong 48% growth rate), Microsoft appears highly resilient with its heavy focus on productivity and cloud software, along with Azure, Windows, and the Office Suite (Word, Excel, and PowerPoint) applications that serve as essential enterprise "utilities." Microsoft's Productivity and Business Processes segment alone generated $34.1 billion last quarter, bolstered by rapid AI adoption that pushed paid Microsoft 365 Copilot seats to 15 million.

In fact, with an expanding presence across enterprise cloud, pushing total Microsoft Cloud revenue past the $50 billion mark for the first time ever, and massive structural AI integrations, Microsoft is decidedly ahead in the game. We believe that while Google's offerings make significant money, Microsoft's deeply entrenched enterprise dominance and superior operating margins provide a promising floor to our belief that Microsoft is undervalued versus Google.

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