The Motley Fool·2026-02-09 08:45Core Viewpoint - Both Alphabet and Microsoft are strong contenders in the AI sector, each employing different strategies, with Alphabet's in-house development of AI models giving it a slight edge over Microsoft's investment in external AI firms [1]. Company Strategies - Microsoft has opted for a more passive approach by investing heavily in OpenAI, holding a 27% stake, rather than developing its own generative AI model [3]. - Microsoft integrates ChatGPT into its products but offers a variety of generative AI models through its Azure Foundry, positioning itself as an AI facilitator rather than a developer [4]. - Alphabet has developed its own generative AI model, Gemini, which has gained significant traction and outperforms ChatGPT in various applications, allowing for tailored user experiences [6][7]. Financial Performance - Microsoft reported a 17% year-over-year revenue increase and a 60% rise in diluted earnings per share (EPS), with a notable contribution from its OpenAI investment [9]. - Azure's revenue grew by 39% year-over-year in Q2 FY 2026, indicating strong performance in the AI spending sector [10]. - Alphabet's revenue increased by 18% year-over-year, with a 31% rise in diluted EPS, while Google Cloud revenue surged by 48% year-over-year, outperforming Azure [11]. Valuation - Following a sell-off after its Q2 earnings announcement, Microsoft shares are currently priced lower than Alphabet's, making Microsoft a more attractive buy at this time [12][14].