Actions in Microsoft (NASDAQ:MSFT) have risen 25% over the past year as investors have grown optimistic about the company’s potent position in technology and its expanding artificial intelligence (AI) business. Growth saw Microsoft surpass Litter as the most valuable company in the world, reaching a market value of over US$3 trillion.
As the home of Windows, Office, Xbox, Azure and LinkedIn, Microsoft has gained a significant user base and has a powerful grip on technology. However, the stock’s recent growth has made it a slightly expensive option compared to other stocks.
The charts above show that Microsoft has a higher price-to-earnings (P/E) ratio and price-to-sales (P/S) ratio than Information (NASDAQ:INTC) It is Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG), two technology companies with solid prospects. The numbers suggest that Microsoft shares offer the lowest value among the three companies.
However, recent developments indicate that Intel and Alphabet may have the same, if not more, growth potential in the coming years than the Windows company. So consider buying these two technology stocks.
1. Information
Intel hasn’t inspired much investor confidence recently, with its shares falling 47% since 2021. The tech giant has faced several headwinds, including a global chip shortage, a market recession that has curbed consumer spending, increased competition that threatened its market share in central processing units (CPUs) and the end of a lucrative partnership with Apple.
However, recent developments indicate that Intel is starting to turn things around and it may be worth investing in the company as it begins its restructuring.
In 2023, the chipmaker announced a complete overhaul of its business model, transitioning to a foundry-first company. The move will see Intel face off against organizations like Semiconductor manufacturing in Taiwan and become one of the largest chip manufacturers in the world. Intel has plans to build at least four chip factories in the US for now, with recent reports showing that construction is progressing on schedule for two sites that opened in 2022.
The focus on manufacturing strengthens Intel’s long-term prospects as increased interest in AI has led to skyrocketing demand for chips. While rivals like Nvidia It is Advanced microdevices specialize in chip design, Intel has the unique opportunity to profit from the AI boom becoming the manufacturer of choice for AI companies.
It will take some time to complete construction of its facilities and see a return on its heavy investment, but Intel could enjoy significant increases in profits thanks to its move to a foundry model.
This chart shows that Intel’s earnings are expected to reach nearly $3 per share over the next two fiscal years. Multiplying this number by the company’s future P/E of 27 results in a share price of just over $70, projecting share growth of 133% through fiscal 2026.
Of course, it’s crucial to remember that these estimates are based entirely on analyst projections, which could turn out to be wrong. However, it would still be a worthy investment even if Intel achieved half that growth.
2. Alphabet
Alphabet shares have risen 206% over the past five years, significantly outperforming the S&P 500increase of 87% in the same period. Powerhouse brands like Android, YouTube, Chrome and Google have seen the company flourish in technology, gaining a loyal user base and a profitable digital advertising business.
Alphabet’s various products attract billions of users, providing nearly endless advertising opportunities. In Q1 2024, ad sales continued to be the gift that kept on giving, with Google services revenue increasing 14% year over year and operating profit increasing 28%.
However, while ads are currently Alphabet’s bread and butter, its future appears to be AI and its platform, Google Cloud. The cloud service reported 28% year-over-year revenue growth in the first quarter of 2024, while operating profit increased 371%. Despite having less cloud market share than Microsoft’s Azure, Google Cloud outperformed its rival in revenue growth by about 7% during the quarter.
Additionally, Alphabet is gradually expanding Google Cloud’s AI capabilities in an effort to keep up with its competitors. Earlier this year, the company unveiled its most advanced AI model, dubbed Gemini. Meanwhile, news emerged on May 30 that the tech giant plans to invest US$2 billion in Malaysia, developing a new data center and Google Cloud hub.
Alphabet is on a promising growth trajectory as it continues to expand its digital advertising business and AI capabilities. Its higher-valued shares make it a no-brainer compared to Microsoft and a screaming buy for anyone looking to invest in technology.
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Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. Daniel Cook has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Advanced Micro Devices, Alphabet, Apple, Microsoft and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft and May 2024 $47 short calls on Intel. The motley fool has a disclosure policy.
Forget Microsoft: 2 Tech Stocks to Buy was originally published by The Motley Fool
