Microsoft Corporation (MSFT)vs Alphabet Inc. (GOOGL)

Quick verdict

Microsoft Corporation (MSFT) and Alphabet Inc. (GOOGL) appeal to different investors. On our six-factor framework, MSFT scores 3 and GOOGL scores 3. GOOGL looks cheaper on the multiples that matter, while MSFT grows faster and MSFT earns higher returns on capital. The two are evenly matched overall, so your priority — value, growth, income or safety — should decide it.

2-year relative performance

At-a-glance comparison

Business model and revenue mix

Microsoft Corporation operates in Software—Infrastructure (Technology), while Alphabet Inc. sits in Internet Content & Information (Communication Services). The two operate in different sectors, so cyclicality and end-market exposure differ — factor that into any portfolio overlap. MSFT carries a beta of 1.27 versus 1.81 for GOOGL, meaning GOOGL has historically been the more volatile of the two.

Valuation

On valuation, GOOGL is the cheaper stock. MSFT trades on a forward P/E of 16.83 and EV/EBITDA of 36.41, against 12.86 and 31.48 for GOOGL. Price-to-sales is 15.59 vs 9.43, and free-cash-flow yield is 5.6% vs 1.5%. A higher multiple is only justified if the company can sustain faster growth or wider margins, which is exactly what the next sections test.

Growth profile

MSFT is the faster grower. MSFT has compounded revenue at 13.4% over three years with EPS growth of 12.8%, while GOOGL has delivered 12.4% revenue and 8.4% EPS growth. Growth like this is the single biggest driver of long-term returns, but it also tends to come with a richer valuation, so it must be weighed against the multiples above.

Profitability and quality

On profitability and quality, MSFT is stronger. MSFT posts a 18.8% operating margin, 47.0% return on equity and 31.5% return on invested capital. GOOGL posts 42.2%, 7.3% and 38.5% respectively. Return on invested capital above roughly 15% is a hallmark of a durable competitive advantage, so this metric deserves particular attention.

Balance-sheet risk

MSFT has the safer balance sheet. MSFT carries net-debt/EBITDA of 1.00x with a current ratio of 1.35, versus 2.61x and 2.92 for GOOGL. Lower leverage gives a company more room to invest through a downturn and reduces the risk of dilution or distress.

Price performance and shareholder returns

Over the past year MSFT returned -13.8% against 28.9% for GOOGL; on a three-year annualised basis it is 4.7% vs -3.6%. MSFT yields 0.0% and GOOGL yields 0.0%. Past performance never guarantees future results, but the multi-year track record shows how the market has rewarded each business so far.

Which stock fits which investor

For value-oriented investors, GOOGL is the better fit on today's multiples. Growth investors will likely prefer MSFT, which is expanding faster. Income investors should lean toward GOOGL for its higher shareholder yield, while investors who prize quality-at-a-reasonable-price will favour MSFT for its superior returns on capital. This is a comparison of facts, not a recommendation — your time horizon, risk tolerance and existing holdings should drive the final decision.

• Value: GOOGL
• Growth: MSFT
• Income: GOOGL
• Quality: MSFT

Frequently asked questions

Is MSFT or GOOGL the better buy right now?

Neither is universally "better." MSFT scores 3 and GOOGL scores 3 on our six-factor framework. GOOGL is cheaper, MSFT grows faster, and MSFT is higher quality — so the right pick depends on your objective.

Which stock is cheaper, MSFT or GOOGL?

GOOGL is the cheaper stock across forward P/E (16.83 vs 12.86), EV/EBITDA (36.41 vs 31.48) and price-to-sales (15.59 vs 9.43).

Which has grown faster, MSFT or GOOGL?

MSFT has the stronger growth profile, with three-year revenue CAGR of 13.4% for MSFT versus 12.4% for GOOGL.

Which stock pays a bigger dividend?

MSFT yields 0.0% and GOOGL yields 0.0%, so GOOGL is the stronger income choice.

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