So, let’s get straight to the point, because last night, within just a few minutes, two of the largest companies on the planet reported earnings, and the market reacted to them in completely opposite ways.
Meta sank, while Microsoft moved higher. The interesting part is not that one is spending billions on artificial intelligence and the other is not. Both are spending heavily. Massive amounts, in fact. The difference lies somewhere else, and it is far more important than it may seem.
We’ll start with Meta, because that’s where the drama happened.
Revenue came in at $60.8 billion, up nearly 28% year over year. It also beat analyst expectations by roughly $510 million. So far, so good.
Earnings per share came in at $6.18, while Wall Street had been expecting around $7.20. Yes, you read that right. More than a full dollar below expectations. As a result, the stock fell between 5% and 8% in after-hours trading.
“How can revenue go up while profits go down?” you might ask.
The answer is simple. Expenses grew faster than revenue. Total costs reached $42 billion, a 55% increase from a year ago. Included in that figure were $2.4 billion in legal charges and $1.18 billion in severance costs related to layoffs that began in May.
The result? Net income fell 13% to $15.85 billion. Operating income declined 8%.
Looking at the rest of the numbers, daily active users across Meta’s apps reached 3.6 billion, up 3%, but slightly below expectations. Ad impressions rose 14%, while the average price per ad increased 12%.
Reality Labs generated $431 million in revenue but posted a $4.6 billion loss.
And this is where things get even more interesting.
The market did not punish the stock just for the quarter that was reported. It punished the stock for what comes next.
Meta expects revenue between $61 billion and $64 billion this quarter, and the midpoint of that range falls below analyst expectations. Full-year expenses are projected at $165 billion to $169 billion. Capital expenditures, meaning money spent on infrastructure, are expected to reach $130 billion to $145 billion, with management raising the lower end of the range. On top of that, the company’s tax rate is expected to rise to between 15% and 17%.
But the number that really stands out is free cash flow.
A year ago, in the same quarter, free cash flow was $8.55 billion. This year? Just $784 million.
That is a collapse.
And there is another major concern.
The company explicitly warned about lawsuits involving minors in the United States that could result in significant losses during the year. Statements like that in an official filing are watched very closely by investors.
Now, you might ask, is Meta the only company dealing with this?
Not at all.
Alphabet recently reported negative free cash flow for the first time in its history, largely for the same reason. However, there is a critical difference. Alphabet, Amazon, and Microsoft all have cloud businesses. Meta does not.
In other words, Meta is spending just as aggressively, but it has no cloud platform generating revenue from that infrastructure investment.
Now let’s move to the second part of the story.
On the very same day, Microsoft delivered the exact opposite outcome.
Earnings came in at $4.74 per share, compared with expectations of roughly $4.25. Revenue reached $90 billion, up 18% year over year, while analysts had been expecting less than $88 billion.
The stock rose between 1.5% and 3% after the close.
And this is where Azure enters the picture.
Microsoft’s Intelligent Cloud division generated $39.31 billion in revenue, up 32%. Azure itself grew 43% year over year.
Pay close attention to this point.
In the previous quarter, Azure grew 40%.
That means growth did not slow down. It accelerated.
And that is exactly what investors had been worried would not happen.
In fact, Azure revenue surpassed $100 billion for the first time in a fiscal year. Total Microsoft Cloud revenue reached $59.3 billion. Meanwhile, Copilot exceeded 30 million paid seats, up from 20 million just a few months ago.
That said, not everything was perfect.
The More Personal Computing segment, which includes Windows, Xbox, and Surface, generated $12.85 billion in revenue, down 4.4%. Windows licensing and device sales declined 7%.
Profits also benefited from a $3.2 billion gain related to Microsoft’s investment in Anthropic, while Xbox results faced additional pressure.
There is also the issue of dependence on OpenAI.
Back in January, Microsoft stated that approximately 45% of its $625 billion in future customer commitments were linked to OpenAI.
Analysts remain divided.
Julian Lin argued that the results were better than feared and that Azure’s accelerating growth is a meaningful first step in proving the AI investment thesis.
Julia Ostian, on the other hand, said the earnings beat was not surprising, but she remains concerned about capital expenditures and believes they will continue to pressure operating profitability over the next three to five years.
So what is the takeaway?
Both companies are paying the same expensive ticket price for artificial intelligence.
The difference is that one of them was able to show investors what it is getting in return, while the other still cannot.
