Microsoft plunges, Meta rallies as investors demand AI payoffs
Microsoft is under growing investor pressure to justify its soaring capital outlay
BIG Tech earnings so far this week have sent a clear warning: investors are willing to overlook soaring spending on artificial intelligence if it fuels strong growth, but are quick to punish companies that fall short.
The contrast was clear in Thursday’s market reaction to earnings from Microsoft and Meta, highlighting how dramatically the stakes have changed since the launch of ChatGPT started the AI boom more than three years ago.
Microsoft dropped 10 per cent, shedding more than US$350 billion in market value after its cloud business failed to impress, while Meta gained 10 per cent. The former’s market valuation of US$3.2 trillion still exceeds that of Meta’s US$1.86 trillion, but over the last two years Meta shares have gained 87 per cent while Microsoft has risen just 7 per cent.
After riding its first-mover advantage with OpenAI to become the world’s most valuable firm in 2024, Microsoft is now under growing investor pressure to justify its soaring capital outlay.
Microsoft reported revenue growth in its Azure cloud-computing business that was only slightly above expectations.
In contrast, AI bolstered ad targeting at Meta, boosting revenue by 24 per cent in the December quarter and aiding a rosy first-quarter forecast. The results show that the Facebook owner’s gains from AI were helping fund its capital spending, which is expected to jump as much as 87 per cent to US$135 billion this year.
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“Meta’s headline numbers are a really interesting reflection of the market’s attitude toward spending in the AI space,” said John Belton, portfolio manager at Gabelli Funds.
“All else equal, the market would typically be concerned, but they have a big revenue guide for the first quarter.”
Microsoft might have an OpenAI problem
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Microsoft also faced pressure after a disclosure that OpenAI, its prized holding, accounts for 45 per cent of its cloud backlog. Investors are worried that some US$280 billion could be at risk as the unprofitable startup loses momentum in the AI race.
The ChatGPT creator had issued an internal “code-red” in December after Google’s Gemini 3 launched to positive reviews and is playing catch-up in AI coding to Anthropic’s Claude Code, which has hit an annualised run rate of more than US$1 billion.
“Microsoft’s deep ties to OpenAI underpin its leadership in enterprise AI, but they also introduce concentration risk,” said Zavier Wong, market analyst at eToro.
Microsoft predicted Azure growth to stay stable in the period from January to March at 37 per cent to 38 per cent, after slowing in the last three months of 2025, partially due to AI chip capacity constraints.
“If I had taken the graphics processing units that just came online in the first quarter and second quarter, and allocated them all to Azure, the KPI (growth) would have been over 40 per cent,” Microsoft finance chief Amy Hood said on a post-earnings call.
She added that the use of chips for internal development efforts had limited the growth.
Meta bets on AI’s compounding effect
For Meta, the revenue growth underscored that its AI pivot was paying off and helping the company catch up to early leaders.
Its revenue rose 24 per cent in the fourth quarter and Meta forecast growth to accelerate as much as 33 per cent in the current quarter.
The company is racking up bills at large cloud providers, such as Alphabet’s Google, which bodes well for the search giant’s results next week. Alphabet shares rose 1.6 per cent.
Using AI “will both improve the quality of the organic experience and of advertising,” CEO Mark Zuckerberg said.
“I think that will have a compounding effect,” he added, as Meta predicted a jump of 43 per cent in total expenses this year to US$169 billion.
Tesla set to double outlay this year
Growing spending was also the theme at Elon Musk’s Tesla, which will double outlay this year to more than US$20 billion as it pivots to AI, humanoid robots and personal vehicles that can drive themselves.
The company also reported quarterly profit and revenue that were above expectations, pushing its shares up 2.9 per cent.
Analysts said the results left some mismatch between corporate AI goals and investors’ demand for payoffs.
“The market appears to be questioning whether these massive capital expenditure hikes will generate sufficient returns,” said Jesse Cohen, senior analyst at Investing.com.
“This reflects a growing divide between tech companies’ AI ambitions and Wall Street’s patience for open-ended investment cycles.” REUTERS
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