Let's have a global comparison of two of the biggest companies in the world, respectively the 2nd and the 3rd in the USA by capitalization.
We are talking of Alphabet and Microsoft:
For those who don't know, Alphabet is the holding of the well-known Google. Recently, Microsoft and Google have been fighting hard to conquer the Artificial Intelligence field.
But let's take a step backward and start looking at their fundamentals.
How is Google performing compared to Microsoft?
The Overview
Our Google vs Microsoft stock analysis begins from the Overview, which gives us a summary of the companies, which had a similar price action.
The Radar Chart returns us a clue (more than one, actually) of what to pay attention to:
Google has a better debt position and a higher growth than Microsoft, also thanks to its youth (Google was founded in 1998 and Microsoft in 1977).
Both companies have great returns (ROS, ROA, ROE, ROIC)
Microsoft has better profitability than Google, and it also detaches dividends!
Let's break the surface and go deeper into fundamentals.
1. Profitability
As regards Profitability, which includes margins from the Income Statement - i.e. Gross Margin, Operating Margin, Profit Margin - Microsoft dominates with 77 points to 100.
All ratios have been positive, solid, and better than competitors; only the Gross Margin has been pretty in line with peers.
On the other hand, Google also had great performances but was not as brilliant as Microsoft achieved to do. The Gross Margin is under the peers' average, other margins are above the average but not as outstanding as Microsoft's ones.
Prometeus algorithms calculated 55 points out of 100 for Big G.
2. Returns
According to the Radar Chart in the summary, both companies have good returns and they are comparable in their usage of assets (ROA).
Return On Sales (ROS) and Return On Equity (ROE) are slightly better for Microsoft, but both are consistently above the average of peers year over year and in the distribution of outcomes, too.
Thanks to its consistently high returns Microsoft achieved an excellent 91/100 score, but Google still defends itself with a respectable 77/100.
3. Debt
Google dominates the Debt section thanks to the low debt which is much lower than peers. As we can see from the D/E ratio - i.e. Debt To Equity - the debt has never exceeded 10% of equity and it also brings the Debt Payback Period below 0.5 years.
On the other hand, Microsoft has another situation with the debt spiking in 2018 and being generally higher than peers. Although the high debt compared to equity, the payback period is really good reaching 2 years just with the debt spike of 2018.
Anyway, any consideration about the debt must take into account the huge amount of cash held by both companies which lowers the risk of payment failures.
Ending with an overview of current assets and liabilities represented by the Current Ratio, both companies have always been above the threshold of 1 with Big G outperforming the peer group for 20+ years.
4. Dividends
As regards Dividends, the story is short and clear. Alphabet does not distribute its income to shareholders and definitely is not a Dividend Stock but rather a Growth Stock (look at the Growth section). 0 Dividend points for Google.
Microsoft instead does pay dividends and those dividends have been growing consistently and steadily over time. This is a thumb up for Microsoft. However, the price of the stock has been growing so fast to overcome the dividend growth and this results into a falling Dividend Yield. At the time this article is being written, the Dividend Yield is 0.8%, which is pretty low and below peers average from 2020 onwards. This leads to 41 points for Microsoft.
5. Growth
The tech sector has been exploding in the last decade and it is particularly true for US stock technological stocks. Google and Microsoft have been definitely leading this trend with their outstanding performance.
Google is younger than Microsoft (founded in 1998 instead of 1977, as reported in the Overview), and its growth is roaring with an exponential growth that has never stopped since 2000 and has often outperformed peers in those 20 years. The high growth rate and its consistency bring 76 points out of 100 for Big G.
As an established and more mature business, Microsoft has also been growing but at a slower pace and with some uncertainties along the way. Except for the last 4-5 years, Microsoft's path seems more to be linear than exponential. Peers comparison shows a general underperformance in Revenue Growth. 63/100 for the Redmond titan.
Conclusion
Alphabet and Microsoft are two great companies, and investors have priced them out handsomely, leading them to be among the most capitalized companies in the world.
Alphabet has traits of a younger, innovative company, such as exponential growth and no dividend distribution. It has a remarkable debt position, which is extremely low and sustainable.
Microsoft, on the other hand, is certainly a mature company, but in spite of this, it still shows growth in its revenues (though not as exponential as Google's). It distributes a stable growing dividend and has excellent margins and returns. The debt position, while not as surprising as Google's, is excellent and fully sustainable.