On the surface, Microsoft (NASDAQ:MSFT) integrating popular chatbot ChatGPT into its Bing search engine symbolizes a clear challenge to Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) and its Google ecosystem. However, it’s more than possible that both enterprises will become winners in this artificial intelligence (AI) arms race. Therefore, I am bullish on MSFT stock and GOOGL stock, which also both happen to have “Strong Buy” ratings from analysts and “Outperform” Smart Scores on TipRanks.
To be fair, Microsoft’s incorporation of ChatGPT appears to put Alphabet under the clock. With ChatGPT providing answers submitted through questions using normal human language, the platform seems more useful than Alphabet’s Google search engine.
Notably, Alphabet responded with its own chatbot named “Bard.” In its initial demonstration, though, Bard answered an inquiry incorrectly, leading to concerns about the long-term viability of GOOGL stock. On the flip side, MSFT stock seems like a no-brainer upside opportunity.
However, when the smoke finally clears, both enterprises should perform well by focusing on their core strengths.
Why MSFT Stock Will Win
With few questions, MSFT stock represents the biggest winner in the underlying company’s bid to integrate ChatGPT. Primarily, the strategic shift will spark greater utility for Bing, which runs as an afterthought to the almighty Google search engine. Now, internet users have a clear reason to even consider Bing.
Previously, Bing, in a way, resembled the cable channel Lifetime. Specifically geared toward women, Lifetime offers thoughtful, compelling programs that evoke numerous emotions and leave lasting impressions. Now, imagine that Lifetime juxtaposed slapstick humor, senseless violence, and gratuitous intimacy into that same programming. It will have (potentially) succeeded in attracting a whole new audience — men.
In all seriousness, that’s essentially what’s going on with Microsoft and the new Bing. Further, as Bing attracts new audiences, the increased eyeball volume allows Microsoft to organically advertise other business units, from video games to its core business applications. Overall, MSFT stock has become even more attractive than it already was.
Why GOOGL Stock is Hardly a Loser
With all the fanfare surrounding ChatGPT, Alphabet and GOOGL stock may appear destined for the trash heap. However, that’s hardly the case at all. Despite the AI arms race, demand for human-operated research functions will not cease. Indeed, it’s possible that ChatGPT’s introduction may help Alphabet.
First, let’s discuss the obvious challenge to ChatGPT (or related AI question-and-answer platforms): it’s not perfect. Several critics pointed out that ChatGPT occasionally generates wrong answers. In fact, OpenAI – the creator of ChatGPT – offers users up to $20,000 to report bugs in its AI systems.
Second, and more importantly, these digital intelligence platforms help narrow a human operator’s search parameters. More than likely, they won’t eliminate humans from the research equation. Instead, ChatGPT and its ilk will direct operators toward the correct data pathway. From there, they can conduct targeted research.
Critically, Google owns about 90% of the search engine market, per data from Statista. Not only that, Alphabet fine-tuned its engine to deliver quality, relevant results over the past several years. Microsoft probably can’t supersede such acumen solely because of its imperfect chatbot partnership.
Enticing Financials Bolster Microsoft
When it comes to the financials, both MSFT stock and its rival feature similarly enticing profiles. For the former, Microsoft benefits from a robust balance sheet. In particular, its Altman Z-Score (a solvency metric) pings at 9, indicating high stability and a very low risk of imminent bankruptcy.
Operationally, Microsoft boasts a three-year revenue growth rate (on a per-share basis) of 17.4%. This stat beats 71.3% of companies listed in the software industry. Also, the company prints a book-value-per-share growth rate of 18.6% during the aforementioned period, outpacing 67.8% of its peers.
Finally, MSFT stock is tied to a highly-profitable enterprise. In particular, its trailing-year net margin stands at 33.05%, ranked better than 96.8% of its rivals.
Is MSFT Stock a Buy, According to Analysts?
Turning to Wall Street, MSFT stock has a Strong Buy consensus rating based on 27 Buys, four Holds, and one Sell rating. The average MSFT stock price target is $301.83, implying 4.7% upside potential.
Alphabet’s Fiscal Picture Also Compels
Not to be outdone, Alphabet also enjoys a strong balance sheet. Here, the company’s equity-to-asset ratio lands at 0.7, ranking better than 60.2% of companies listed in the interactive media industry. Also, its Altman Z-Score is 10.17, reflecting a very low bankruptcy risk.
Operationally, Alphabet’s three-year revenue-per-share growth rate comes out to 22.9%, outpacing 75.3% of sector players. As well, its free-cash-flow-per-share growth rate during the same period is 27.2%, above 73.8% of rivals.
Just like Microsoft, Alphabet enjoys healthy profitability. For example, its net margin stands at 21.2%, ranked better than 83.8% of the competition.
Is GOOGL Stock a Buy, According to Analysts?
Turning to Wall Street, GOOGL stock has a Strong Buy consensus rating based on 29 Buys, zero Holds, and zero Sell ratings. The average GOOGL stock price target is $127.48, implying 22% upside potential.
Takeaway: Both MSFT and GOOGL are Attractive
While much has been made of Microsoft’s challenge to Alphabet because of ChatGPT, the narrative could be more symbiotic than previously imagined. Basically, ChatGPT will provide greater utility for Microsoft Bing but as a function of effectively limiting search parameters. For in-depth research, AI platforms still have plenty of work to do. Therefore, Google’s acumen in search engines should benefit GOOGL stock.
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