Investors delivered a clear message to Big Tech this earnings season: record spending on artificial intelligence is acceptable only if it produces strong growth, highlighting how expectations have shifted since ChatGPT’s launch more than three years ago.
Meta Platforms reassured markets with robust results. Revenue at the Facebook owner rose 24% in the December quarter, helped by AI-driven improvements in online advertising. The company also issued a first-quarter revenue forecast that beat expectations, suggesting it can fund a sharp rise in data-centre spending, projected to climb as much as 87% this year to $135 billion.
“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, by contrast, faced a cooler reception. Growth in its Azure cloud business came in only slightly above expectations, lagging behind record capital spending. Investors were unsettled by disclosures showing that OpenAI accounts for about 45% of Microsoft’s backlog, raising concerns over concentration risk if the unprofitable startup loses momentum.
“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 shares fell 6.5% in after-hours trading, while Meta’s jumped 10%. After capitalising on its early partnership with OpenAI to become the world’s most valuable company in 2024, Microsoft is now under growing pressure to justify its soaring capital outlay.
The company expects capital expenditure to decline in the January–March quarter after spending $37.5 billion in the previous three months. It forecast Azure growth to remain stable after slowing late last year, partly blaming AI chip capacity constraints.
Meta, meanwhile, is pressing ahead with an aggressive AI strategy, including heavy investment in data centres and talent as it pursues what Chief Executive Mark Zuckerberg has described as “superintelligence.” The company expects total expenses to rise 43% this year to $169 billion.
Analysts say the contrasting reactions underline a widening gap between tech companies’ AI ambitions and investors’ demand for near-term returns.
“The market appears to be questioning whether these massive capital expenditure hikes will generate sufficient returns,” said Jesse Cohen, senior analyst at Investing.com.— Reuters
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