The contrasting reaction to Microsoft MSFT and Alphabet’s latest earnings has offered Jim Cramer a fresh reason to favour one of the technology giants over the other, as investors increasingly scrutinise how companies are financing their artificial intelligence ambitions.
The CNBC “Mad Money” host believes Microsoft’s ability to manage spending while delivering strong cloud growth puts it in a stronger position, while Alphabet faces growing pressure from its AI infrastructure investments and slowing search business.
Cramer believes Wall Street is now trusting companies that show financial discipline and returns on their investments.
Alphabet shares plunged 12.65% on Thursday in their steepest single-day decline, while Microsoft was largely unchanged even as the Nasdaq Composite fell 1.38%.
“I think the stock of Microsoft, with all of its discipline, is now set to soar, while the stock of Alphabet won’t rally,” Cramer said on CNBC.
“Too much baggage for Alphabet. No discipline. No sense of what it’s supposed to be doing.”
Jim Cramer
Why Cramer favours Microsoft?
Cramer praised Microsoft for combining strong cloud performance with financial discipline and positive free cash flow.
He also pointed to growing traction for Copilot, the company’s AI assistant for businesses.
“Copilot started slow, but it is becoming a screaming success,” he said.
Microsoft reported fiscal first-quarter revenue of $92.28 billion, up 18.8% from a year earlier and above analysts’ expectations of $90.62 billion, according to FactSet.
Net income climbed to $36.63 billion from $27.75 billion, while diluted earnings per share reached $4.92.
Azure was a major contributor, with revenue growth accelerating to 48% in the September quarter, beating the company’s forecast of 44% to 45%. Microsoft Cloud revenue increased 30% to $63.9 billion.
Cramer credited CEO Satya Nadella and CFO Amy Hood for maintaining financial discipline while expanding the company’s AI and cloud businesses.
“They (Nadella and Hood) run it like a business, not a science project,” he said, adding that the combination of strong leadership and controlled spending could help Microsoft pull ahead of competitors.
Alphabet’s AI spending raises concerns
Alphabet, meanwhile, reported revenue of $127.6 billion, missing analysts’ expectations of $128.2 billion. Its adjusted earnings per share came in at $2.67, below the $3.02 estimate.
Search and other revenue grew 12% year over year, slowing from 17% in the previous quarter.
The company also reported negative free cash flow of $9.07 billion, substantially worse than expectations, as heavy AI infrastructure spending continued.
Google Cloud was a bright spot, with revenue more than doubling to $30.71 billion.
However, that growth failed to offset concerns about rising investment costs and the outlook for search advertising.
“I don’t want to buy more Alphabet,” Cramer said, arguing that investors should wait for analysts to revise their estimates and reassess the stock’s valuation.
“Today was the worst day the stock ever had, but I have to wait a little bit. Let the analysts cut numbers, see where it trades, find out the right multiple.”
“Microsoft? It’s a buy right here,” he concluded.
Microsoft is down 0.69% in overnight trading while Alphabet has slumped 0.72% ahead of the opening bell.
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