Jim Cramer Picks Microsoft Over Alphabet, Citing Baggage and Cash Flow

Jim Cramer, the host of “Mad Money,” recommended buying Microsoft (MSFT) after the latest round of Big Tech earnings. Alphabet, he said, comes with too much baggage after a second consecutive quarter of negative free cash flow.

Alphabet still has $27.6 billion worth of new shares remaining under its at-the-market program, which can dilute current shareholders. Microsoft, in contrast, remained free cash flow positive at $18.6 billion — the money left over after capital spending.

What Draws Cramer to Microsoft Instead of Its Rivals?

Microsoft’s first-quarter free cash flow declined 27% year over year, while Azure cloud revenue jumped 48%. The company expects its free cash flow to stay positive through fiscal 2027, Chief Financial Officer Amy Hood said.

That restraint, in Cramer’s view, explains why Microsoft stands apart from its rivals.

“They run it like a business, not a science project.”

Jim Cramer, CNBC

He would hold off, however, on adding to his Alphabet position until analysts lower their estimates.

Can Alphabet and Amazon Make Their Spending Add Up?

For the third quarter, Alphabet posted negative free cash flow of $9.1 billion, according to its results. The second quarter came in at negative $5.9 billion.

The company brought in $12.4 billion from stock sales and $28.7 billion from notes, even as concerns about AI capex and debt linger.

Alphabet has also agreed to pay SpaceX $920 million per month for compute through June 2029, according to TechCrunch. The arrangement covers around 110,000 Nvidia graphics processing units (GPUs).

Amazon (AMZN) came up short of Wall Street’s earnings estimate. Even so, its operating margin reached a company-record 13.9%, according to its release.

Amazon Web Services (AWS), the cloud division, grew 39.3% to a $184 billion annualized run rate. Cramer also called Amazon a buy but first wants to hear the earnings call. All three stocks are held by his Charitable Trust.

Read as a group, the three Big Tech earnings reports suggest AI outlays are dividing cloud giants along the lines of who can fund them internally. Microsoft looks to be the only one of the four largest spenders still producing positive free cash flow. If spending tops guidance, that assessment could change.