Big tech earnings so far this week have sent a clear warning: Investors are willing to overlook rising spending on artificial intelligence if it drives strong growth, but are also willing to punish companies that underperform.
The contrast was evident in the stock market’s reaction to Microsoft and Meta’s earnings on Thursday, highlighting that the stakes have changed dramatically since the AI boom began more than three years ago, with the launch of ChatGPIT.
Shares of the Instagram parent rose more than 9% on strong sales, while Microsoft shares fell 10% after its cloud business failed to impress.
“The market appears to be questioning whether these massive capital spending increases will deliver adequate returns,” said Jesse Cohen, senior analyst at Investing.com. “It reflects a growing divide between tech companies’ AI ambitions and Wall Street’s patience for open-ended investment cycles.”
After riding its first-mover advantage with OpenAI to become the world’s most valuable firm in 2024, Microsoft is now under increasing pressure from investors to justify its rising capital outlay.
Microsoft reported revenue growth at its Azure cloud-computing business that just beat expectations.
Conversely, AI enhanced ad targeting on meta, increasing revenue by 24% in the December quarter and helping beat Q1 forecasts. The results show that Facebook’s owner profits from AI are helping finance its capital spending, which is expected to grow 87% this year to $135 billion.
“Meta’s headline numbers are a really interesting reflection of the market’s attitude towards spending in the AI space,” said John Belton, portfolio manager at Gabelli Funds.
“All else being equal, the market would generally be concerned, but they have a big revenue guide for the first quarter.”
Microsoft also faced pressure after the revelation that OpenAI, its prized holding, accounted for 45% of its cloud backlog. Investors are worried that about $280 billion could be at risk as unprofitable startups lose momentum in the AI race.
The ChatGPIT maker released an internal “Code Red” in December after Google’s Gemini 3 received positive reviews and is playing catch-up in AI coding to Anthropic’s Cloud Code, which has achieved an annual run rate of more than $1 billion.
“Microsoft’s deep relationship with OpenAI underlines its leadership in enterprise AI, but they also introduce concentration risks,” said Xavier Wong, market analyst at eToro.
Microsoft predicts Azure growth will remain steady at 37% to 38% in the January to March period, after slowing in the last three months of 2025, partly due to a lack of AI chip capacity.
“If I had taken the graphics processing units that came online in Q1 and Q2, and allocated all of them to Azure, the KPI (growth) would have been over 40%,” Microsoft finance chief Amy Hood said on a post-earnings call.
He said the use of chips for internal development efforts has limited growth.
For Meta, the revenue growth underlined that its AI pivot was working and helping the company reach the early leaders.
Its revenue grew 24% in the fourth quarter, and Meta forecasts growth to rise to 33% in the current quarter.
The company is racking up the bill on big cloud providers like Alphabet’s Google, which bodes well for the search giant’s results next week. Alphabet shares rose 1.6%.
Meta’s CEO, Mark Zuckerberg, said using AI will “improve the quality of both organic experiences and advertising”.
“I think it will have a compounding effect,” he said, as Meta predicts a 43% increase in total spending this year to $169 billion.
Also a topic was rising spending at Elon Musk’s Tesla, which is set to double outlays this year to more than $20 billion as it focuses on AI, humanoid robots and personal vehicles that can drive themselves.
The company also reported quarterly profit and revenue above expectations, although its annual profit and revenue declined for the first time. Shares rose 2.9%.
Analysts said the results left some mismatch between corporate AI goals and investors’ demand for payouts.
