On the surface, Microsoft (MSFT) and Meta Platforms (META) issued similar quarterly updates last week. Both beat expectations with their headline financial figures. Both showed significant growth in key metrics. Both tech giants also revealed aggressive AI spending plans.
But the markets responded in dramatically different ways. Microsoft dropped nearly 10% following its quarterly report. Meta moved by almost 10% in the opposite direction.
How investors responded to these outwardly similar earnings reports sheds light on the way they are weighing a common conundrum in today’s market: heavy AI investment vs. achieving quarterly financial goals. So why did the market respond so differently to the results from META and MSFT?
Starting Points Mattered
Both tech giants delivered earnings beats and revealed substantial AI-related capital expenditure plans. Meta’s fourth-quarter revenues grew about 24% to $59.9 billion, comfortably exceeding the anticipated 21% growth. Earnings per share of $8.88 topped estimates by $0.66.
Microsoft’s fiscal second-quarter results were similarly strong on paper, with adjusted earnings of $4.14 per share beating the $3.92 estimate, while revenue rose 17% year-over-year to $81.27 billion.
When looking at the disparate reaction to the results, part of the explanation lies in where each stock stood heading into earnings season. At the end of 2025, Microsoft was showing a one-year stock advance of 17%. At the same time, Meta was actually down 4% on a one-year basis.
Following the release of the companies’ financial figures, this separation disappeared, with the stock performance converging. Once the dust settled on the post-earnings trading, both META and MSFT showed one-year gains of about 4%.
There’s Growth … And Then There’s Growth
Beyond starting valuations, analysts pointed to fundamental differences in how each company is executing on its core business.
At Meta, the advertising machine showed signs of accelerating. Average revenue per person, also known as ARPP, reached $16.56 in Q4. This was up 16% from the prior year and marked the 10th consecutive quarter of double-digit growth in this category. Meanwhile, daily active people across Meta’s Family of Apps rose 7% year-over-year to 3.58 billion, while ad impressions jumped 18% and average price per ad increased 6%.
Turning to Microsoft, its cloud business, while still growing, showed signs of potentially reaching a plateau. Azure revenue grew 38% in constant currency. This technically beat the company’s guidance of 37% but represented a deceleration from 39% growth in the prior quarter.
“The debate … is no longer about demand; it is about capacity timing (and perhaps allocation),” Evercore analysts noted. “While Azure growth at these levels remains impressive and continues to suggest market share gains, capex rose 66% year over year, and investors are increasingly looking for clearer evidence that this elevated investment is translating into incremental Azure acceleration.”
Weighing the Value of AI Spending
Both companies are spending heavily on AI infrastructure, but the market appears more confident in Meta’s approach, at least for now.
Meta’s AI investments are already showing tangible returns in its core advertising business, Jefferies highlighted, noting that Meta’s video generation tools have reached a $10 billion run rate, Instagram Reels watch time increased 30% year-over-year from Q4 optimizations, and model rollouts drove a 24% increase in incremental conversions.
“META gave multiple data points showing AI is driving core flywheel,” Jefferies analysts wrote, raising their price target to $1,000.
Wedbush was similarly enthusiastic: “Ongoing investments across the business, including the infusion of AI capabilities across the company’s ad stack and content recommendation engines, are already driving tangible benefits for the core advertising segment.”
For Microsoft, the picture was cloudier. The company faced supply constraints that limited its ability to fully monetize AI demand.
“Our customer demand continues to exceed our supply,” Microsoft CFO Amy Hood acknowledged during the earnings call. “Therefore, we must balance the need to have our incoming supply better meet growing Azure demand with expanding first-party AI usage across services like M365 Copilot and GitHub Copilot.”
Morgan Stanley removed Microsoft from its “top pick” status, noting that “investor focus has narrowed more tightly towards areas seen as the key indicators of GenAI fitness, namely Azure growth and M365 Commercial Cloud.”
Still, there were also some concerns about Meta's strategy. "Essentially, Meta is going all-in on AI development with the aim to advance its model development to compete with peers like Alphabet's Gemini," Seeking Alpha analyst Michael Del Monte noted in reaction to Meta's report.
He concluded: "I believe this may add substantial risk to performance given Meta's potential dependency on the success of AI development, whereas peer hyperscalers like Google Cloud, Amazon AWS, and Microsoft Azure add value through cloud hosting, with AI development being viewed as an added benefit."
Looking Ahead
Meta guided first-quarter 2026 revenue of $53.5 billion to $56.5 billion, well above expectations of $51.4 billion. The company also projected 2026 capital expenditures would rise to a range of $115 billion to $135 billion, while maintaining that operating income would still exceed 2025 levels.
Truist Securities called it “an impressive 1Q guide (+30% growth at midpoint, fastest since 3Q21) reflecting robust ad demand fueled by AI improvements across ad recommendations, monetization, and user engagement.”
Microsoft, meanwhile, guided Azure growth of 37-38% for the next quarter, roughly in line with expectations but not enough to excite investors hoping for acceleration.
RBC Capital maintained its bullish stance on Microsoft, calling it their “top large cap pick” and noting that “MSFT’s AI footprint and cloud growth remain underappreciated.”
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.