Microsoft (MSFT) vs Alphabet (GOOGL): the numbers side by side
By Lubin Danilo, founder of Lubin Investment
On our 10 quality criteria, Microsoft comes out ahead. On price, Microsoft trades cheapest relative to its free cash flow. In other words, comparing Microsoft and Alphabet means answering two separate questions, and they do not necessarily have the same answer.
Both stocks side by side
| Metric | Microsoft (MSFT) | Alphabet (GOOGL) |
|---|---|---|
| Quality score | 8/10 | 6/10 |
| P/FCF | 51.1× | 116.8× |
| Sector | Software Infrastructure | Internet Content & Information |
| Price | 416.69 USD | 368.53 USD |
| Market cap | 2.9T | 4.2T |
Quality: which one passes more criteria
Microsoft passes 8/10 of our quality criteria, against 6/10 for Alphabet. The criteria are identical for both: profitability, revenue and free cash flow per share growth, share count control, free cash flow margin, margin expansion, return on capital, debt, conversion of earnings into cash, and cash conversion cycle. No weighting, no opinion: it is a count.
Price: which one is cheaper
Microsoft trades at 51.1× its free cash flow, against 116.8× for Alphabet. A lower multiple means you pay fewer years of cash for the same slice of the business. Mind the reflex though: a low multiple is only a bargain if the quality holds up. That is why we judge the two separately, and never one through the other.
Microsoft's accounts are public: 10-K filings with the SEC (EDGAR).
Alphabet's accounts are public: 10-K filings with the SEC (EDGAR).
How to decide
There is no "better stock" in the abstract, there is a better stock for a given goal. If you want the most solid financial quality, follow the score. If you want to pay the least for the cash produced, follow the P/FCF. If both point to the same name, the case is simple. If they diverge, you are trading off paying more for a better business against paying less for a more questionable one. The two detailed pages below give the criterion-by-criterion breakdown for Microsoft and for Alphabet.
Frequently asked questions
Should you buy Microsoft or Alphabet?
Microsoft passes 8/10 of our quality criteria, against 6/10 for Alphabet. The criteria are identical for both: profitability, revenue and free cash flow per share growth, share count control, free cash flow margin, margin expansion, return on capital, debt, conversion of earnings into cash, and cash conversion cycle. No weighting, no opinion: it is a count. Microsoft trades at 51.1× its free cash flow, against 116.8× for Alphabet. A lower multiple means you pay fewer years of cash for the same slice of the business. Mind the reflex though: a low multiple is only a bargain if the quality holds up. That is why we judge the two separately, and never one through the other.
Microsoft or Alphabet: which one is cheaper?
Microsoft : 51.1× against 116.8×.
Can you hold both?
Nothing prevents it, and it is common when both pass our quality criteria. Keep in mind that two companies in the same sector often react to the same shocks, so holding both diversifies less than it looks. This page is a numbers comparison, not a recommendation.