Alphabet (GOOGL) Vs. Microsoft (MSFT): Which Tech Giant is More Attractive Ahead of Earnings

Core Viewpoint - Investors are closely watching the upcoming quarterly results from Alphabet and Microsoft, with expectations of strong earnings growth for both companies [1]. Quarterly Expectations - Alphabet's Q1 earnings are projected to increase by 27% to $1.49 per share, with sales expected to rise 14% to $66.02 billion. The company has surpassed earnings expectations for four consecutive quarters, averaging a surprise of 7.22% [2]. - Microsoft is anticipated to report earnings of $2.81 per share for its fiscal third quarter, reflecting a 14% increase year-over-year, with sales projected to rise 15% to $60.63 billion. Microsoft has exceeded EPS estimates for six consecutive quarters, with an average surprise of 8.82% in the last four quarters [2]. Performance & Valuation Comparison - Year-to-date, Alphabet's stock has risen by 13%, while Microsoft shares are up by 8%, both outperforming the S&P 500's 5% and the Nasdaq's 4%. Over the past year, both companies have seen stock increases of over 40% [4]. - In terms of P/E valuation, Alphabet trades at a forward earnings multiple of 23X, which is near the S&P 500's 20.9X, while Microsoft trades at 34.5X. Alphabet is trading at a discount to its decade-long median of 26.1X, whereas Microsoft is above its median and closer to its high of 37.4X [6]. Earnings Estimate Revisions - For Alphabet, earnings estimate revisions for Q1 and FY24 have remained unchanged, with slight increases in FY25 EPS estimates [8]. - In contrast, Microsoft's earnings estimates for the current quarter and FY24 have slightly decreased over the last two months, while FY25 EPS estimates have remained unchanged [10]. Takeaway - Both companies are expected to achieve double-digit EPS growth in FY24 and FY25, but Alphabet holds a Zacks Rank 3 (Hold), while Microsoft has a Zacks Rank 4 (Sell). This is attributed to favorable earnings estimate revisions for Alphabet and its P/E valuation compared to Microsoft, which trades at a premium and has seen a dip in FY24 EPS estimates [11].