Meta's stock fell nearly 9% in after-hours trading following its Q2 earnings report, where the company emphasized continued AI spending despite investor skepticism. Meanwhile, Microsoft's stock rose 8% after reporting strong AI-driven growth in Azure and Microsoft 365 Copilot.
Part 1: Immediate Action & Core Facts
Meta reported a 27% increase in ad revenue, driven by AI enhancements, but its AI investments totaled $31.1 billion, nearly double last year's spending. Free cash flow dropped from $8.55 billion to $784 million. Microsoft, however, saw Azure revenue grow 43% and reported over 30 million paid seats for Copilot, up from 20 million in April. Both companies reiterated their AI spending plans, but investor reactions diverged sharply.
Part 2: Deeper Dive & Context
Meta's AI Strategy and Investor Backlash
Meta attributed its ad revenue growth to AI, with ad impressions rising 14% and average ad prices climbing 12%. However, CEO Mark Zuckerberg acknowledged that consumer-facing AI applications require more time to develop. Analysts compared Meta's approach to 'throwing spaghetti at the wall,' highlighting the lack of immediate returns. The company's free cash flow plummeted, raising concerns about sustainability.
Microsoft's AI Success and Market Response
Microsoft's Azure cloud business outperformed expectations, and Copilot adoption surged. Analysts noted that Microsoft's $190 billion data-center investment is beginning to yield results. The company maintained its 2026 capital expenditure forecast but hinted at expansion in 2027. Despite a 24% year-to-date stock decline, investors responded positively to the earnings report.
Contrasting Investor Sentiment
Meta's stock dropped nearly 10% after the earnings call, reflecting investor dissatisfaction with its AI spending. In contrast, Microsoft's stock jumped 8%, signaling confidence in its AI-driven growth. The divergence underscores the market's demand for measurable returns on AI investments.