Meta, Microsoft roar higher on strong earnings as AI spending booms

Shares of Meta experienced a remarkable 12% increase, while Microsoft rose by 5% on Thursday, following the release of their impressive earnings reports that exceeded expectations on both revenue and profit. With this surge, Microsoft achieved a market capitalization of over $4 trillion, joining Nvidia in this elite category. Both tech giants have significantly increased their investments in artificial intelligence infrastructure in recent years. Meta projected its capital expenditures for the year to be between $66 billion and $72 billion, raising the lower end of its previous forecast. Meanwhile, Microsoft anticipates over $30 billion in capital expenditures and assets acquired through finance leases in its fiscal first quarter, surpassing analysts' expectations of $24.23 billion. Analysts from Citi noted that the heightened capital investments from both companies are set to benefit chip manufacturers. Microsoft accounts for approximately 8% of Advanced Micro Devices' sales, while Meta represents about 2% of Broadcom's sales. They remarked, "We believe AVGO and AMD will be the primary beneficiaries of Microsoft's and Meta's increased capex." In addition to expanded capital expenditures, Meta's CEO Mark Zuckerberg is aggressively hiring in the AI sector, underscored by a substantial $14.3 billion investment in the data-labeling company Scale AI and the establishment of the new Meta Superintelligence Labs unit. Morgan Stanley analysts acknowledged the strength of Meta's core business, which is funding the new AI talent and infrastructure, but expressed caution regarding Zuckerberg's spending habits. They stated, "The core business is robust enough to support the new AI initiatives, but the way Zuckerberg is allocating funds raises concerns if the superintelligence team does not deliver as expected." Barclays analysts pointed out that while the generative AI scaling at Microsoft is still unfolding, the strong demand for its data center infrastructure suggests sustained momentum in upcoming quarters. They maintained an overweight rating on Microsoft's stock, stating, "With its strong Q4 FY25 results, MSFT has confirmed its unique position in the software industry and will likely remain a core holding for investors." In its fiscal fourth quarter, Microsoft reported a revenue of $76.44 billion, reflecting an 18% increase year-over-year, with net income rising to $27.23 billion, or $3.65 per share, compared to $22.04 billion the previous year. Similarly, Meta achieved $47.52 billion in revenue for its second quarter, a 22% year-over-year increase, with net income climbing 36% to $18.34 billion, or $7.14 per share.