Both Alphabet and Microsoft had results during the first quarter above expectations. Both were driven by strong growth in their cloud businesses.
However, Alphabet was hit by a slowdown in the growth of its search business, so it compensated by announcing a dividend payment.
While Microsoft benefited from the strong demand for services related to Artificial Intelligence.
Alphabet is more dependent on advertising than Microsoft. Alphabet’s advertising revenue accounted for 81% of its total revenue in the first quarter, while Microsoft’s software revenue accounted for 69% of its total revenue.
Alphabet has a larger presence in the consumer market than Microsoft. Alphabet owns Google, YouTube and other platforms, while Microsoft focuses primarily on the enterprise market.
Investments in AI at Microsoft are already beginning to bear fruit and have become a new engine of growth. This is the case of ChatGPT from its partner OpenAI, which is having great demand with its tools for summarizing documents and generating content. The new business-focused Copilot app has been hugely popular in recent months.
At XTB we think that the main advantage of these companies is their ability to innovate and open new markets; they are capable of generating a large amount of cash with which to continue investing in new developments without having the immediate need to start monetizing them.
The biggest threat to these two companies is their high valuations, as they not only need to justify them quarterly with their results, they also need to maintain good growth prospects for the future. This is what happened to Meta, despite the good results, it collapsed due to the prospect of a slowdown in its next profits.
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