NEW YORK, Jan 2, 2026, 10:49 ET
- Microsoft slipped in late-morning trading while Alphabet edged higher as investors sized up valuations for 2026’s AI trade.
- A “moat” argument is back in focus for Microsoft, even as the stock trails the broader market’s 2025 run.
- A sector review showed automation software companies beat revenue forecasts in Q3, but stocks eased after earnings.
Microsoft shares were down about 1.6% at $475.69 in late-morning trade on Friday, while Alphabet rose about 0.7% to $315.20. Microsoft’s market value stood near $3.85 trillion versus roughly $2.94 trillion for Alphabet, with Microsoft trading at about 37 times earnings compared with Alphabet at roughly 24 times.
The moves come as investors start 2026 still leaning into big technology names after an AI-led rally in 2025. The S&P 500 gained 16.39% last year and Alphabet jumped 65%, helping make the communication services sector the index’s best performer, Reuters reported. 1
U.S. stocks also opened the first trading day of 2026 higher, led by technology shares, as risk appetite returned after late-December losses. Investors are watching whether the market’s AI narrative carries into the new year, Reuters said. 2
Microsoft’s stock lagged the S&P 500 in 2025 despite rising more than 15%, and investors are debating whether its AI push can re-accelerate growth, MarketBeat columnist Chris Markoch wrote. He pointed to Microsoft’s ownership stake in OpenAI and said revenue in the company’s fiscal first quarter of 2026 totaled $77.67 billion, up 18% from a year earlier, while a forecast for fiscal Q1 2027 implies about 14% growth. Markoch argued the company’s “moat” — an investor term for a durable competitive edge — rests on a deeply embedded installed base that includes more than 400 million paid Microsoft 365 seats and 1.6 billion active Windows devices. 3
Generative AI produces text, code or other content from prompts, and software vendors are racing to sell it as part of everyday business tools. Microsoft’s Copilot brand refers to AI assistants embedded across its software and cloud products, and investors are looking for clearer proof that those features can drive incremental revenue.
In a separate sector review, StockStory said automation software companies posted a strong third quarter, beating analysts’ revenue estimates by 4.4% as a group, even as share prices fell 3.3% on average since earnings. Microsoft’s revenue rose 18.4% year on year and topped estimates, and CEO Satya Nadella said, “Our planet-scale cloud and AI factory, together with Copilots across high value domains, is driving broad diffusion and real-world impact.” StockStory said peers Pegasystems and UiPath also beat expectations, pointing to steady demand for tools that automate business workflows. 4
Automation software is built to reduce manual work by digitizing routine tasks like approvals, customer support and data entry. Newer platforms increasingly add machine learning — software that learns patterns from data — to automate more complex processes inside large companies.
The post-earnings pullback across the automation group underscores how quickly investors are shifting from “AI promise” to near-term execution. Quarterly beats are no longer enough if guidance and valuation do not line up.
That scrutiny is sharpening comparisons between Microsoft and Alphabet as investors try to pick the most resilient AI winners for 2026. Microsoft is anchored by enterprise software and cloud subscriptions, while Alphabet is best known for Google Search and its advertising business.
Both companies sit at the center of customer spending on cloud computing — remote data storage and processing sold as a service — and both are investing heavily to support AI workloads. Growth rates, margins and valuation multiples are becoming the deciding factors, not just product announcements.
For Microsoft, the question is whether Copilot becomes a measurable revenue driver quickly enough to justify its premium. For Alphabet, investors are focused on whether AI-enhanced search keeps users engaged while protecting the economics of its core business.
