Alphabet vs. Microsoft Stock: Hope you made some money

As an investment idea, Google’s parent company Alphabet stock (NASDAQ: GOOGL) posted strong returns compared to Microsoft’s actions (NASDAQ: MSFT): Alphabet stock is up 40% compared to a approximately 25% increase for Microsoft stocks since we first discovered Alphabet’s bullish opportunity against Microsoft six months ago in April (see article below). More specifically, if you bought $ 10,000 of Alphabet shares and sold $ 10,000 of Microsoft shares (a net investment of $ 0) on April 24 when we published our analysis below, your count would be 1,500 $ net as of November 17. Not bad for most of us.

Our interactive dashboard Google vs. Microsoft has more details on how Google’s stocks stack up against Microsoft’s.

As Google’s revenue growth is expected to slow in 2020, with advertising revenue – particularly from travel, restaurants, and the broader consumer discretionary space – impacted by Covid-19, markets have recognized the potential for l ‘business. Google’s cloud business has grown relatively faster than its competitors and could be an important long-term driver for action. The company’s advertising business could also pick up quickly, with wide availability of a Covid-19 vaccine likely in 2021. Growth-hungry investors also likely attribute greater importance to Google’s moon bets going from Waymo (driverless cars) to Verily, and Calico (life sciences) to Deepmind (artificial intelligence systems).

That being said, there might not be much more benefit to this trade in the short term. After all, the Alphabet share rallied far more than Microsoft’s. Google’s P / E multiple based on the last twelve months’ earnings is also now similar to Microsoft’s at around 35x.

What if you were looking for a more balanced portfolio instead? here is a high quality wallet to beat the market with a return of almost 120% since 2016, compared to around 60% for the S&P 500. Comprised of companies showing strong revenue growth, healthy earnings, plenty of liquidity and low risk, it has outperformed the market in its together, year after year, consistently.

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[4/24/2020] Why Microsoft’s surge in stock prices versus Google won’t last

Microsoft’s actions is up over 100% since the start of 2018. That’s great for Microsoft. But wait a minute, Google’s parent Alphabet stock is up a paltry 22% over the same period. Hard to believe, but Microsoft’s stock is over four times the Google stock. This, despite the fact that Alphabet’s revenue growth for the period 2017-2019 was 46%, compared to just 30% for Microsoft. Does this make sense? We don’t think so and think Google is probably a solid investment right now. Our dashboard Google vs. Microsoft: Microsoft’s 4x price hike won’t last, has the underlying numbers.

Of course, Microsoft’s profit margins (net income as a percentage of sales) are higher at 31% versus 21% for Google, but we believe the difference does not explain the 4 times growth of Microsoft shares compared to Google. Microsoft’s P / E is also much higher at 34x based on its current market price and FY19 EPS, while Google’s is 26x.

How do Alphabet’s and Microsoft’s core businesses compare?

Let’s take a closer look at the outlook for the core business. Google is enjoying massive advertising exposure from travel, restaurants, and the broader decline in discretionary consumer spending. Alphabet’s revenue next week may paint a grim picture, while Microsoft’s will look solid. On the other hand, businesses of all stripes, from mask sellers to restaurants, need all the customers they can get – now – and mostly online. Google’s pay-per-click advertising, for which marketers only pay when their ads perform, may hold up better than we think.

Additionally, while Microsoft seems a little more sheltered by focusing on productivity and cloud-based software with Windows and Office Suite applications (Word, Excel, and PowerPoint) which are Internet “utilities”, Google is not. not far behind. In fact, with a formidable and growing presence in the corporate cloud, Google Drive storage, Google suite applications: from Gmail to Chrome, including Docs, Sheets and Slides, it could even be considered a precursor. . We believe that while many of these offerings make Google significantly less money than Microsoft, they provide a promising foundation for our belief that Google is undervalued relative to Microsoft.

The final straw may be the various Google X bets that range from Waymo (driverless cars) to Verily and Calico (life sciences) to Deepmind (artificial intelligence systems) which again have the edge in a world where asking seemingly far-fetched questions, and then putting your money into finding answers, might be the only way to go. In summary, we believe that Alphabet is likely to outperform Microsoft, if not in the short term, at least in the medium and long term.

There may be an even greater opportunity when you compare Google to Apple.

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