Performance Splits Microsoft and Meta Stock Prices... "But AI Investments Will Continue"

By the first half of this year, the fortunes of companies in the artificial intelligence (AI) sector, which had experienced a worldwide boom, began to diverge. Amid growing concerns over excessive AI investment, the stock prices of the two AI giants—Microsoft (MS) and Meta—have headed in sharply different directions. Microsoft was evaluated as having demonstrated clear investment results in cloud and AI software. On the other hand, Meta saw its free cash flow plummet due to immense AI investments, and its outlook failed to meet expectations. However, both companies have announced that they will continue investing in AI.

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On July 29 (local time), both Microsoft and Meta announced their earnings after the close of the New York Stock Exchange. Microsoft's revenue for the fourth quarter of its fiscal year 2026 reached $90 billion, an 18% increase from the same period last year. Adjusted earnings per share (EPS) stood at $4.74. Both the revenue and EPS exceeded market forecasts, which stood at $87.62 billion and $4.24 per share, respectively, according to financial information provider LSEG.

In particular, the cloud business, which had attracted considerable market attention, reported stronger-than-expected growth. Revenue from cloud services—including Azure—increased by 43% compared to the same period last year, surpassing the market forecast of about 40%. Azure's annual revenue exceeded $100 billion for the first time, and paid Microsoft 365 Copilot accounts surpassed 30 million. Microsoft plans to continue its investments. The company projected that capital expenditure (CAPEX) for the first quarter of fiscal 2027 would exceed $50 billion, an increase of more than 22% from the previous quarter's $41 billion.

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Meta also showed solid revenue growth. Second-quarter revenue rose to $60.8 billion—a 28% increase from the same period last year—beating the LSEG consensus estimate of $60.17 billion. The core advertising business continued to expand, with ad impressions up 14% and average price per ad up 12%. However, EPS was $6.18, falling more than $1 short of market analysts' expectations of $7.22. In addition, its outlook also fell short of market expectations. Meta forecasted third-quarter revenue to be between $61 billion and $64 billion. The midpoint, $62.5 billion, is below LSEG’s projected estimate of $63.15 billion.

Nevertheless, Meta is expected to continue with AI-related investments this year. The company adjusted its CAPEX forecast from $125 billion–$145 billion to $130 billion–$145 billion, raising the lower end of the guidance. Mark Zuckerberg, Meta CEO, said, "A substantial portion of our computing resources will be devoted to AI model training, core business growth, personal agents, and new product launches," adding, "We also expect to build a major business providing computing services to large customers."

The difference between the two companies was especially pronounced in their free cash flow. Despite expanded AI infrastructure investments, Microsoft recorded free cash flow (FCF) of about $19.6 billion. Although this represented a 23% decrease from the previous year, it still significantly surpassed the market consensus of $13.44 billion. In contrast, Meta's FCF plunged by 91% to $784 million. According to Bloomberg, this is the lowest figure since the third quarter of 2022.

Ultimately, what separated the stock performance of the two companies was whether their massive AI investments were accompanied by appropriate profits. Microsoft’s stock rose by more than 8% after the close in New York, while Meta’s fell by more than 7%. Brad Reback, an analyst at Stifel, told The Wall Street Journal (WSJ), "Microsoft’s investments in both AI infrastructure and its own applications are clearly bearing fruit."

Minda Smiley, senior analyst at market research firm eMarketer, told Bloomberg, "Meta's strong revenue growth will once again be overshadowed by CAPEX forecasts," adding that investors will likely demand more detailed explanations of its potential computing business plans and strategies for monetizing AI.

This content was produced with the assistance of AI translation services.