This earnings season has presented a stark divergence in how tech giants are navigating the artificial intelligence landscape, with Meta Platforms riding a wave of investor confidence while Microsoft faces scrutiny over its substantial AI investments.
Meta Platforms saw its market value surge by over $176 billion after reporting results that signaled its AI initiatives are beginning to positively impact its bottom line. The social media behemoth announced plans to invest between $115 billion and $135 billion in its AI infrastructure this year, nearly double its 2025 expenditure. Despite past investor concerns about such ambitious spending, Meta’s robust 24% year-over-year revenue growth, largely driven by its digital advertising business, appears to have assuaged these worries. CEO Mark Zuckerberg highlighted the development of a range of new products and reiterated his vision for “personal superintelligence,” a statement that resonated well with the market.
In contrast, Microsoft experienced a significant downturn, with its stock plummeting 10% and shedding over $357 billion in market capitalization, marking its worst trading day since March 2020. The software giant’s latest earnings report revealed a deceleration in its Azure cloud segment’s growth, dipping to 39% from 40% in the previous quarter. This slowdown is particularly scrutinized by investors who view Azure’s performance as a key indicator of enterprise AI demand.
Adding to investor unease, Microsoft’s capital expenditures and finance leases surged 66% to $37.5 billion, exceeding analyst expectations. This increased spending is attributed to the company’s efforts to meet the burgeoning demand for its cloud and AI services, alongside addressing compute capacity constraints where demand continues to outstrip supply. Microsoft’s finance chief, Amy Hood, indicated that Azure’s growth could have been higher had all available graphics processing unit (GPU) chips been allocated to the segment. The company is actively balancing supply with demand, integrating new AI capabilities across its product suite, including GitHub Copilot and M365 Copilot. Microsoft’s backlog of contracted future revenue rose to $625 billion, a substantial increase driven in part by a $250 billion cloud agreement with OpenAI. Analysts at Evercore ISI suggested that concerns surrounding OpenAI’s funding could be a contributing factor to Microsoft’s stock decline, though they deemed such sentiment to be “overblown.”
The contrasting AI narratives also extended to other technology companies. IBM saw its shares climb 5% following its earnings report, which surpassed expectations and demonstrated strong growth in its software and infrastructure segments. The company’s AI business book more than doubled to $12.5 billion, a figure that appears to validate its strategic investments. Analysts at JPMorgan characterized IBM as a “relatively defensive name with increasingly favorable exposure to Software and AI tailwinds.”
However, the broader software sector faces headwinds. ServiceNow experienced a 10% stock drop, as investor concerns about AI potentially disrupting established software business models overshadowed its better-than-expected earnings. The company’s stock has seen a considerable decline over the past year, reflecting a wider market sentiment. This sector-wide sell-off is fueled by fears that new AI tools could diminish demand for traditional software workflows and licenses, impacting long-standing revenue streams. ServiceNow’s CEO, Bill McDermott, sought to reassure investors, emphasizing that enterprise AI will be a significant driver of returns in the ongoing AI infrastructure investment supercycle and defending the company’s recent acquisitions as strategic moves to foster growth.
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