Is Microsoft the Next Alphabet?

Microsoft (NASDAQ: MSFT) and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) are two of the most prominent companies in the world. Alphabet is currently the third-largest, while Microsoft is in fourth place, although it's a long way away from catching Alphabet's market capitalization.

However, it wasn't always this way. If you rewind to this time last year, the outlook on Alphabet's stock was incredibly bearish. There were questions surrounding the future of the Google search engine due to illegal monopoly allegations, and there wasn't a ton of confidence in Alphabet's ability to deliver a leading AI model.

Both of those questions were resolved in the second half of 2025, as Alphabet wasn't required to make any massive changes to its current business to abide by the judge's ruling, and Gemini emerged as one of the top generative AI models. This caused Alphabet's stock to soar through the end of the year.

Microsoft's stock has been beaten down lately and has reached unbelievable valuation levels, similar to what Alphabet went through last year. So, can Microsoft become the Alphabet of 2026? Let's take a look.

Microsoft's situation isn't as dire as Alphabet's was

When you compare the situation each company is in, it's clear that Alphabet's was more dire. Alphabet gets the majority of its revenue and profits from the Google Search engine. Last year, the questions surrounding whether Google would be allowed to exist in its current format and if it could survive the challenge from generative AI weren't clear. Alphabet may have ceased to exist in its present format if it hadn't played its cards right, so the situation was not rosy.

Microsoft isn't in nearly that bad of shape. If you look at Microsoft's business, there really isn't anything to be worried or concerned about. Microsoft isn't directly competing in the AI arms race with a large language model; instead, it's choosing to be an AI facilitator and offers many AI models on its cloud computing platform, Azure. It also owns about 27% of OpenAI, which could be a huge payoff if OpenAI goes public.

During Microsoft's last quarter, Azure posted one of its best quarters ever, with revenue rising 39% year over year. Overall, Microsoft delivered one of its best growth rates the company has posted over the past decade.

MSFT Revenue (Quarterly YoY Growth) data by YCharts

There are really no red flags going on with Microsoft's business, and it's generally been proclaimed an overall winner in the AI buildout. However, that hasn't stopped the market from selling off its stock.

Microsoft is due for a huge rebound

One could argue that Microsoft's stock was overpriced at its last all-time high. I'll buy that notion, as it was trading at a fairly high operating price-to-earnings ratio.

MSFT Operating PE Ratio data by YCharts

I prefer this valuation metric for Microsoft's stock, as it ignores one-time accounting effects and investment gains from OpenAI. From this standpoint, Microsoft is approaching decade-low valuation levels. Microsoft's outlook now is just as good as it has been over the past decade, so while Microsoft was highly valued at the start of the sell-off, that's no longer the case.

I think now is the perfect time to scoop up Microsoft's shares, as its comeback should be rapid. I think it could be the Alphabet of 2026, and rebound to new all-time highs throughout the second half of the year. With the stock down around 35% from its all-time high, you're being presented with a gift that rarely occurs, and investors should seize this once-in-a-decade investment opportunity. Alphabet was down 30% from its all-time high during the worst parts of its 2025 sell-off, so Microsoft's comeback has the chance to be even bigger.

Keithen Drury has positions in Alphabet and Microsoft. The Motley Fool has positions in and recommends Alphabet and Microsoft. The Motley Fool has a disclosure policy.