Prediction: Alphabet will be worth more than Microsoft by 2030

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) and Microsoft (NASDAQ: MSFT) are both members of the "Magnificent Seven," as well as two of the five most valuable stocks by market cap. However, with a market cap of $3.9 trillion, versus a $3.1 trillion market cap for Alphabet, the software and cloud computing giant is worth slightly more than the Google and YouTube parent as of October 23.

However, don't assume this will persist. Microsoft may have had an early lead capitalizing on this trend, but Alphabet has since made major progress in this area. Thanks to the prospect of further AI-related growth coupled with potential multiple expansion for the company's shares within the next five years, Alphabet's market cap could exceed that of Microsoft.

Microsoft's first-mover advantage

OpenAI's late 2022 debut of ChatGPT put the generative AI (GenAI) megatrend into motion. Not that long after, Microsoft beat its Magnificent Seven competitors to the punch, by announcing a multi-year, multi-billion-dollar long-term partnership with OpenAI in January 2023.

Microsoft had already been an early backer of OpenAI, but it was from this deal that Microsoft gained a serious first-mover advantage capitalizing on this technology. At the time, there were even concerns that Microsoft's Bing search engine could give Google search a run for its money, by integrating OpenAI's technology into its platform.

Fast forward to now. Microsoft's collaboration with OpenAI has been beneficial across the board, including for the company's Azure cloud computing business, as well as for its enterprise software business. However, this partnership has thus far done little to make Bing a competitive threat to Google search. Google's search market share remains at around 90%. Bing's market share is still at around 4%.

More importantly, however, is that Alphabet has played some serious catch up in GenAI. Initial hiccups notwithstanding, the company has since become a dark horse contender for the AI crown.

What further AI success could mean for Alphabet

AI integration has enabled Google to keep search advertising competition at bay, but Alphabet's AI success goes beyond just securing the competitive moat of its core business. As I noted recently, Alphabet's main AI platform, Gemini, has been gaining popularity.

Meanwhile, the company continues integrating AI into its other products and services, including Chrome and Google Cloud. Alphabet is even exploring new ways to monetize its investment -- namely, with the recent launch of an AI-based enterprise software platform known as Gemini Enterprise.

Don't get me wrong. Microsoft's first-mover advantage, coupled with its existing dominance in areas like enterprise software, likely mean that the company will continue to benefit greatly from this trend. However, by diversifying its AI-related revenue streams, Alphabet may be finally able to convince the market that it's worthy of a higher valuation.

As it stands today, Alphabet trades at a forward P/E of around 23, while Microsoft trades for 33 times forward earnings.

The jury's still out

Over time, Alphabet shares could experience valuation expansion, while Microsoft's valuation premium could come down. If this continues, coupled with steady earnings growth, Alphabet could become the more valuable of the two companies.

That said, the jury's still out whether this will actually occur. Only time will tell whether Alphabet usurps Microsoft's AI crown, much less continues to become a stronger force in the field of GenAI.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.