The Motley Fool·2025-12-14 21:15Core Insights - Both Microsoft and Alphabet are solidifying their leadership roles in the AI industry, with Alphabet's market cap reaching nearly $3.9 trillion and Microsoft's at $3.6 trillion [1][11]. Microsoft Overview - Microsoft has a 27% ownership stake in OpenAI, which has positioned it well in the AI market, especially following the release of GPT-4 [2][5]. - The company has developed its own AI engine, Copilot, and has partnered with Anthropic to scale Claude AI on Azure servers [3][4]. - Microsoft generated almost $78 billion in free cash flow over the last 12 months, with $69 billion in capital expenditures [4][10]. - Year-to-date gains for Microsoft stock have slowed to about 14%, and it trades at a P/E ratio of 34, slightly above the S&P 500 average of 31 [5][12]. Alphabet Overview - Alphabet launched Google Gemini to compete with ChatGPT, which has evolved into a preferred platform for real-time information and video generation [8][12]. - Despite skepticism regarding its Google Search engine, Alphabet's revenue has grown, and it generated nearly $74 billion in free cash flow over the last 12 months [9][10]. - The company plans to spend $91 billion to $93 billion on capital expenditures this year, indicating its capacity for significant investments [10]. - Alphabet's stock has gained around 70% this year and trades at a P/E ratio of 32, close to the S&P 500 average [12]. Comparative Analysis - Both Microsoft and Alphabet are recognized as industry leaders in AI, with potential for continued stock growth [13]. - Alphabet may have an edge due to its lower valuation and significant capital expenditures, which could lead to higher returns over time [14].