Shares in Microsoft (MSFT 1.92%) have climbed 25% over the last year as investors have grown bullish over the company's potent position in tech and its expanding artificial intelligence (AI) business. The growth saw Microsoft surpass Apple as the world's most valuable company, achieving a market cap above $3 trillion.
As the home of Windows, Office, Xbox, Azure, and LinkedIn, Microsoft has garnered a significant user base and has a powerful grip on tech. However, recent stock growth has made it a slightly expensive option compared to other stocks.
Data by YCharts
This charts above show that Microsoft has a higher forward price-to-earnings ratio (P/E) and price-to-sales ratio (P/S) than Intel (INTC 5.00%) and Alphabet (GOOGL 2.01%) (GOOG 2.27%), two tech companies with solid outlooks. The figures suggest Microsoft's stock offers the least value out of the three companies.
Meanwhile, recent developments indicate Intel and Alphabet could have the same, if not more, growth potential in the coming years than the Windows company. So, consider buying these two tech stocks instead.
1. Intel
Intel hasn't instilled much confidence in investors recently, with its stock tumbling 47% since 2021. The tech giant has faced multiple headwinds, including a global chip shortage, a market downturn that curbed consumer spending, increased competition that has threatened its market share in central processing units (CPUs), and the end of a lucrative partnership with Apple.
However, recent developments indicate Intel is beginning to turn things around, and it could be worth investing in the company at the start of its restructuring.
NASDAQ: INTC
Key Data Points
In 2023, the chipmaker announced a complete overhaul of its business model, transitioning to a foundry-first company. The move will see Intel go up against organizations like Taiwan Semiconductor Manufacturing and become one of the world's top chip manufacturers. Intel has plans to build at least four chip plants in the U.S. for now, with recent reports showing construction is progressing on schedule for two locations that broke ground in 2022.
Focusing on manufacturing strengthens Intel's long-term outlook as increased interest in AI has led to skyrocketing demand for chips. While rivals like Nvidia and Advanced Micro Devices specialize in chip design, Intel has the unique opportunity to cash in on the boom in AI by becoming the go-to manufacturer for companies across AI.
It'll take time to complete construction on its facilities and see a return on its hefty investment, but Intel could enjoy significant boosts in earnings thanks to its shift to a foundry model.
Data by YCharts
This chart shows Intel's earnings are expected to hit nearly $3 per share over the next two fiscal years. Multiplying that figure by the company's forward P/E of 27 yields a stock price of just over $70, projecting stock growth of 133% by fiscal 2026.
Of course, it's crucial to remember that these estimates are based entirely on analyst projections, which could prove wrong. However, it would still be a worthy investment even if Intel achieves half of that growth.
2. Alphabet
Shares in Alphabet have climbed 206% over the past five years, significantly outperforming the S&P 500's 87% rise in the same period. Potent brands like Android, YouTube, Chrome, and Google have seen the company flourish in tech, garnering a loyal user base and a lucrative digital ad business.
Alphabet's various products attract billions of users, granting almost endless advertising opportunities. In the first quarter of 2024, ad sales continued to be the gift that kept on giving, with Google Services revenue rising 14% year over year and operating income soaring 28%.
NASDAQ: GOOGL
Key Data Points
However, while ads are currently Alphabet's bread and butter, its future appears to be AI and its platform, Google Cloud. The cloud service posted revenue growth of 28% year over year in the first quarter of 2024, while operating income increased by 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.
Moreover, 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 yet, dubbed Gemini. Meanwhile, news broke on May 30 that the tech giant plans to invest $2 billion in Malaysia, developing a new data center and a Google Cloud hub.
Alphabet is on a promising growth trajectory as it continues expanding its digital ad business and AI capabilities. Its better-valued stock makes it a no-brainer compared to Microsoft and a screaming buy for anyone looking to invest in tech.
