Microsoft (MSFT -1.46%) and Alphabet (GOOG -3.34%) (GOOGL -3.42%) are two tech giants that have become fierce rivals over the years. Both have been terrific growth investments with their three-year returns looking very comparable: Microsoft is up 65%, and Alphabet trails only slightly with gains of around 60%.

But with a major acquisition in Activision in the books and ChatGPT looking like a better chatbot than Bard, has Microsoft proved to be the better growth stock?

Microsoft has several growth opportunities

What stands out about Microsoft's business is that there is a lot of potential for the company to get bigger. It is rolling out artificial intelligence (AI) features on its already popular Office suite of products. It has invested billions in ChatGPT maker OpenAI, and Microsoft projects that it could generate $10 billion in annual revenue due to AI.

But Microsoft is more than just an AI stock. Last quarter, which ended on Sept. 30, the company generated better than 20% revenue growth from multiple product categories, including Azure (29%), Dynamics 365 (28%), Microsoft Cloud (24%), and server products (21%).

The company has a key growth opportunity in gaming now that it closed on its acquisition of Activision Blizzard, which makes the Call of Duty franchise. Sales from Xbox content and services rose at a modest 13% last quarter, but with the acquisition, Microsoft could have an opportunity to help expand that business.

With so many growth opportunities, it's hard to not like Microsoft as a long-term investment.

Alphabet has a couple of amazing assets to build around

Alphabet might not have as broad a business as Microsoft, but it does have two highly coveted assets in Google Search and YouTube. Through those two assets, the company generated $59.6 billion in advertising revenue last quarter (which also ended in September).

That's more revenue than Microsoft reported ($56.5 billion) across all of its different product categories. In total, Alphabet reported $76.7 billion in sales when including Google Cloud and other Google services.

Investors who are fretting over Google Cloud growing at a slower rate (22%) than Microsoft Cloud last quarter are overlooking the long-term potential of Alphabet. Bard is less popular than ChatGPT right now, but Alphabet's real ChatGPT rival is not here just yet. The company is still working on Gemini, an AI model that it says should be a more formidable competitor.

The one risk that throws a wrench into all this is the ongoing antitrust suit the U.S. government launched against Google for its search dominance this year. But a resolution might not come until next year at the earliest. The good news is that it could end up simply being a fine. Microsoft survived attempts to break up its business, and officials haven't broken up Meta Platforms despite efforts do so.

A breakup of Alphabet doesn't appear to be a huge risk at this point. Even with Microsoft Windows being the dominant operating system on personal computers, Bing has less than 9% of the total search-engine market share on desktops, and Google sits comfortably in first place at almost 84%.

There's more to it than just Google being the default; Google's search functionality might simply be better than Bing's, which is not something Microsoft executives want to admit.

Despite the hype, Microsoft isn't the better growth stock

Microsoft is trading at 33 times its earnings while Alphabet trades at a multiple of only 24. Investors are paying more of a premium for Microsoft because it has been making more noise relating to AI, especially with ChatGPT being part of its team and many investors recalling that Bard was the AI that fumbled in its opening demo. It wasn't a great start for Alphabet, but that doesn't mean the company won't finish strong. 

Alphabet's business isn't as diverse as Microsoft's, but that also means it can be more focused on finding ways to enhance YouTube and Google with AI. Alphabet can be a better-run business with this focus.

Also, Alphabet has beaten Microsoft on search, and although it stumbled out of the gate with AI, I'm confident it can be the winner there as well. Growth investors are getting more value for their money with Alphabet right now, and that is the stock I see as being the better growth investment in the long run.