Meta, Microsoft and Tesla kicked off earnings season for the so-called Magnificent Seven tech stocks on Wednesday, and it was the Facebook parent company that most impressed investors.<\/p>\n
Reuters<\/p>\n
Big Tech earnings so far this week have sent a clear warning: investors are willing to overlook soaring spending on artificial intelligence<\/a> if it fuels strong growth, but are quick to punish companies that fall short.<\/p>\n The contrast was clear in Thursday\u2019s stock market reaction to earnings from Microsoft MSFT-Q<\/a> and Meta META-Q<\/a>, highlighting how dramatically the stakes have changed since the launch of ChatGPT started the AI boom more than three years ago.<\/p>\n Shares of the Instagram parent surged 7 per cent on strong sales, while those of Microsoft slumped 6 per cent after its cloud business failed to impress.<\/p>\n After riding its first-mover advantage with OpenAI to become the world\u2019s most valuable firm in 2024, Microsoft is now under growing investor pressure to justify its soaring capital outlay.<\/p>\n Microsoft reported revenue growth in its Azure cloud-computing business that was only slightly above expectations.<\/p>\n 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\u2019s 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.<\/p>\n \u201cMeta\u2019s headline numbers are a really interesting reflection of the market\u2019s attitude toward spending in the AI space,\u201d said John Belton, portfolio manager at Gabelli Funds.<\/p>\n \u201cAll else equal, the market would typically be concerned, but they have a big revenue guide for the first quarter.\u201d<\/p>\n Microsoft might have an OpenAI problem<\/p>\n 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.<\/p>\n The ChatGPT creator had issued an internal \u201ccode-red\u201d in December after Google\u2019s Gemini 3 launched to positive reviews and is playing catch-up in AI coding to Anthropic\u2019s Claude Code, which has hit an annualized run rate of more than US$1-billion.<\/p>\n \u201cMicrosoft\u2019s deep ties to OpenAI underpin its leadership in enterprise AI, but they also introduce concentration risk,\u201d said Zavier Wong, market analyst at eToro.<\/p>\n 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.<\/p>\n \u201cIf 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,\u201d Microsoft finance chief Amy Hood said on a post-earnings call.<\/p>\n She added that the use of chips for internal development efforts had limited the growth.<\/p>\n Meta bets on AI\u2019s compounding effect<\/p>\n For Meta, the revenue growth underscored that its AI pivot was paying off and helping the company catch up to early leaders.<\/p>\n 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.<\/p>\n The company is racking up bills at large cloud providers, such as Alphabet\u2019s Google GOOGL-Q<\/a>, which bodes well for the search giant\u2019s results next week. Alphabet shares rose 1.6 per cent.<\/p>\n Using AI \u201cwill both improve the quality of the organic experience and of advertising,\u201d CEO Mark Zuckerberg said.<\/p>\n \u201cI think that will have a compounding effect,\u201d he added, as Meta predicted a jump of 43 per cent in total expenses this year to US$169-billion.<\/p>\n Tesla set to double outlay this year<\/p>\n