AI Trade Splits Big Tech: Meta Plunges 9%, Microsoft Surges 8%

Microsoft shares experienced a significant surge in premarket trading, while Meta’s stock tumbled, as investors largely diverged in their reactions to the two tech giants’ latest earnings reports. Microsoft’s stock advanced approximately 8% in extended trading, offsetting a year-to-date decline of around 24%. Conversely, Meta saw its shares drop by approximately 8.5% and is now down about 16% for the year.

Microsoft’s robust performance was underpinned by its fiscal fourth-quarter revenue exceeding analyst expectations, with its crucial Azure cloud computing business demonstrating a remarkable 43% year-over-year growth, also surpassing market forecasts. The company highlighted the accelerating adoption of its AI-powered work assistant, Microsoft 365 Copilot, boasting over 30 million paid seats, a substantial increase from the 20 million reported in April. This uptake is a clear indicator that Microsoft’s substantial investments in artificial intelligence are beginning to yield tangible returns.

“Microsoft’s strong revenue performance, combined with accelerating Copilot adoption, signals that its significant data center buildout is beginning to deliver returns,” commented Tracy Woo, principal analyst at Forrester. This sentiment was echoed by market observers who noted that Microsoft’s stock gained traction even as the company maintained its capital expenditure outlook for fiscal year 2026 and cautioned about potential spending increases in fiscal year 2027, a period marked by market caution regarding the escalating costs associated with AI development.

The narrative for Meta, however, presented a stark contrast. The social media giant fell short of investor expectations for both its earnings and its revenue guidance for the current quarter. Meta projected revenue for the current quarter in the range of $61 billion to $64 billion, with a midpoint of $62.5 billion. This fell below the $63.15 billion guidance anticipated by analysts surveyed by LSEG. Adding to the pressure, Meta’s free cash flow experienced a sharp 91% year-on-year decline, settling at $784 million, a consequence of its ongoing and substantial commitment to AI infrastructure development.

In response to these results, Meta CEO Mark Zuckerberg indicated a potential strategic shift, noting that the company is “getting a lot of offers for compute at a significant premium” over its acquisition costs. This suggests Meta might explore leasing out its excess computing capacity to third parties. While this could represent a new revenue stream, the announcement lacked specific details about the potential business model. Zuckerberg also acknowledged the critical need to retain computing resources for internal use to drive the development of novel products and services. This dual focus on external monetization and internal development highlights the complex balance Meta is attempting to strike in the rapidly evolving AI landscape.

“Right now, the narrative from Mark Zuckerberg is a little light on detail and relying on what could be done in the future,” observed Ben Barringer, head of technology research at Quilter Cheviot. “Meta still has a crucial role to play in the AI world, but it is still finding its way somewhat and that is why we see both costs and revenues looking a little volatile.” The market’s reaction underscores investor scrutiny regarding the capital allocation strategies and long-term profitability of companies heavily invested in the AI race.