Meta and Microsoft Just Showed Wall Street Two Different AI Bets
Meta Platforms and Microsoft delivered their quarterly earnings reports after the market closed on July 29, and investors had opposite reactions.
META dropped sharply but pared some of those losses later in the after-hours session.
MSFT made a modest jump immediately after the report, but was up nearly 10% by the time after-hours trading ended.
The question is why?
Meta: It's the Messenger and the Message
For Meta, the headline numbers were mixed. Revenue of $60.8 billion was up 28% year-over-year (YOY). But adjusted earnings per share (EPS) came in at $6.18. That was well below the $7.14 that analysts expected. Total expenses were up 55% YOY.
The company also guided for Q3 revenue in a range of $61 to $64 billion. The low end of that range came in under the $63.15 billion analysts expected
But the real story was CapEx. Meta guided to a full-year CapEx between $135-145 billion, up from $125-145 billion in the last quarter.
Here's the part that should sound familiar. Not long ago, Zuckerberg poured tens of billions into the metaverse with little to show for it. He seemed to learn the lesson and reined in spending.
Now the checkbook is open again, this time for AI data centers, and it's increasingly funded with debt rather than free cash flow. Bond investors are already demanding higher yields to finance Meta's buildout than they were nine months ago. That's the credit market pricing in the same skepticism the stock market showed tonight.
Meta isn't being punished for spending. It's being punished for its own history of spending badly, and the market wants to see the receipts. It's about the messenger as much as the message.
Microsoft: A Grown-Up Report
Microsoft's quarter gave investors no bad surprises. Azure growth came in at 43%, accelerating from 40% last quarter, and beating the 40% consensus,
Copilot has crossed 30 million paid seats. Hmmm...I thought that wouldn't amount to much.
CapEx came in at $41 billion, up 69% YOY, but slightly below what the Street feared. Management didn't back off its spending plans. It reiterated them, and investors rewarded the consistency.
The Real Fear: Delay, Not Dollars
Put these two reports side by side, and I'll tell you something you're not hearing from the mainstream media.
Investors aren't afraid that hyperscalers are spending on data centers. These companies aren't going to invest all that CapEx on vanity projects. They are responding to demand.
The real fear is that the data centers won't get built on time, or at all. Many data center projects scheduled for completion in 2026 have been pushed to 2027 or later.
Then there's the always-helpful government, which appears to be taking steps to regulate something it doesn't really understand.
In New York, Governor Kathy Hochul has imposed a one-year moratorium on new data center construction in the state. If you think this "helpful" oversight will stop there, I don't know what to say.
The impact of that delay would mean cash is leaving the door faster than capacity comes online. It also could overturn the entire productivity narrative and raise other uncomfortable questions about the economy.
That's why the reports matter. Microsoft showed a spending plan that's translating into Azure growth and Copilot revenue right now. Meta showed a spending plan still asking for patience, backed by a company that has asked for patience before.