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The Big Advantage Microsoft Has Over Alphabet in the AI Wars

Microsoft (NASDAQ: MSFT) and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) look to be forever rivals, and artificial intelligence (AI) is shaping up to be their latest battleground. Both have been investing in AI and are using next-gen technology to provide better products and services for their customers.

But Microsoft may have a big early advantage over Alphabet.

Many of the largest companies in the world use Microsoft's productivity software

Microsoft Office, which is now marketed as Microsoft 365, is a staple for many businesses. More than 1 million companies in the world use that software package, which includes Word, Excel, Outlook, and PowerPoint. The software-as-a-service subscription allows companies to have access to the latest in productivity software.

Since investing billions of dollars in ChatGPT maker OpenAI, Microsoft has been working on ways to use AI to enhance its products and services. And some of the ways AI can do that is through automating day-to-day tasks, such as drafting emails and letters, or doing analysis in spreadsheets.

That makes Microsoft's Copilot, which utilizes AI to enhance the company's office applications, particularly appealing to companies. It's one of the easier ways a business can test out AI and see just how it can help daily operations.

On Microsoft's earnings call last month, management said that 40% of Fortune 100 companies are already using Copilot. It wasn't fully rolled out to all companies last quarter, but Microsoft called the early results encouraging, with CEO Satya Nadella saying "customers tell us that once they use Copilot, they can't imagine work without it." Copilot will be more widely available to enterprise customers in November.

Alphabet has an answer to Copilot, but it faces an uphill battle

Alphabet will have AI features in its cloud-based applications, including Google Sheets and Google Docs. Its AI add-on will be marketed under the name Google Duet, and at $30 per month, it's the same price as Microsoft's Copilot.

Google's office products have typically appealed to start-ups and faster-growing companies that may be more price-conscious (nothing is required beyond a Google account to access Google Sheets or Docs) and although the company may still lure some big customers onto Google Duet, there's little doubt that Microsoft has a key advantage given that Microsoft 365 is so widely used by larger businesses.

Why Alphabet could still win in the end

Incorporating AI into its Office products could help Microsoft open a big early lead in this arena. But many users today go on the OpenAI website to access ChatGPT, which now has 100 million weekly active users. Having AI available within its existing productivity titles will be a "nice to have," but it likely won't dictate the winner, nor will it determine which company winds up with the best chatbot or AI products in the end.

Google's Gemini will be an AI model that could be in a better position to compete against ChatGPT than Bard -- but Gemini hasn't rolled out yet. As such, it could be some time before investors can get a good glimpse of what Google's AI will be able to do versus Microsoft and ChatGPT. This is a battle that's still in its early stages, and while Microsoft may have the early lead, investors should be careful now to count out Alphabet just yet.

Ultimately, I wouldn't bet against Alphabet. The company has developed incredibly strong and intuitive assets with Google Search and YouTube. They are designed to help people find answers to all sorts of queries.

And although Alphabet's Bard may be looking like the second-best chatbot option right now behind ChatGPT, I would expect Google, with its vast and superior knowledge of the search business, to come out with the better product in the end.

Which stock is the better buy for AI investors?

If you're trying to gauge which of these tech companies could be the bigger winner in AI, it may be too early to tell. That's the safe answer. But based on their track records, Alphabet is the stock I'd go with. Not only could its chatbot be superior in the end, but the opportunities for the company to make its search engine and YouTube even better with AI is what has me most optimistic about Alphabet's growth potential.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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