Chalk and Cheese: Meta and Microsoft earnings round up

Microsoft and Meta both reported results after the US closing bell, however, the reaction to these results could not have been any different. While Meta’s stock price is falling by 10%, Microsoft is up by 2%. This means that Meta’s share price is down 11% YTD and is underwater to the tune of 18% in the past year. Below, we delve into the details about why Meta’s latest quarterly numbers have failed to woo the market.

Meta fails to impress investors, and the stock price slumps

Although Meta’s revenues were stronger than forecast at $60.8bn vs. $60.17bn expected, earnings per share were significantly lower than expected at $6.18, vs. expectations of $7.22. Revenue forecasts were also weaker than forecast, with the company expecting sales to come in at $62.5bn for this quarter, below estimates of $63.15bn.

There were two numbers that investors were closely watching in this earnings report. The first was capex. Meta did not increase its top end forecast for capex this year, however, it did lift the lower end of the forecast. Capex spend is now expected to come in at $130bn - $145bn, up from $125bn - $140bn. The company is burning through its cash pile to afford AI investments. Free cash flow dropped below $1bn to $784mn last quarter, declining more than 90% from $8.55bn a year earlier. Total costs rose to $42.03bn for last quarter, up a whopping 55% in a year. More than $1bn of costs were linked to severance pay after the company announced a wave of layoffs.

Investors also wanted to know how Meta is monetizing its AI spend. The results did not deliver good news. Meta reported that its Reality Labs division, which produces the virtual reality headsets and its wearable AI tech, had lost $4.6bn last quarter on sales of $431mn. On paper, this looks unsustainable. Meta’s cash burn rate also looks unsustainable, especially since recent announcements that data centres in Alberta and Louisiana would cost nearly $60bn to build.

It’s been a rough couple of weeks for Meta’s share price, which has traded lower for ten consecutive days, its longest losing streak in its history. Although severance costs are only temporary and we could see profitability bounce back in Q3, we think that the sharp selloff in the Meta share price in the post-market is down to the astonishing burn rate of free cash flow.

Mark Zuckerburg said on the earnings call that the company is selling its compute at a premium compared to its cost, however, this leaves more questions for investors – why did Meta buy it in the first place? Is Meta now a compute hire shop? Added to this, Zuckerberg also said that Meta was working on building personal AI agents for individuals and for businesses. Right now, the evidence is not there that this is paying off, and Meta’s share price is getting punished for it.

Microsoft deep dive: can it maintain the stock market gain during the wider sell off?

Microsoft’s earnings data has been more warmly received. It reported revenues that were higher than forecast at $90.01bn, and earnings per share of $4.74. It also reported a $3.2bn return on its investment in Anthropic, and lower than expected costs associated with its early retirement programme, which helped to preserve profitability last quarter.

Microsoft is a full stack AI provider, which means that it has a problem allocating chips between its Azure cloud business and its AI research applications like Copilot assistant. It also needs to spend a fortune to continue to develop its AI product suite, and it reported capex spend for last quarter of $41bn up more than 60% in a year. Although free cash flow fell 23% compared to last year, it is still at $19.64bn, which is a more comfortable number for the market to digest compared to Meta’s.

Azure cloud revenue rose above $100bn for the fiscal year 2026, for the first time ever, which means it is now bigger than Google Cloud; this has also been cheered by the market. Azure generated revenues of $40bn last quarter alone, which is an impressive growth rate of 43% last quarter, up from 40% growth in Q1. The company also reported 30 million paid Copilot users last quarter.

The company had a decent quarter, and these results suggest that the market may give Microsoft some leeway to spend more on AI, as Azure and Copilot are showing healthy signs of growth and monetization, something that Meta is lacking and may find it hard to achieve due to its product offering.

The 2% rise in the share price tonight comes at a time when other tech stocks are selling off, so even this modest rise is a good achievement considering the backdrop.

Microsoft’s share price is still down 19% YTD and is down by nearly a quarter in the past 12months. At some stage will this AI powerhouse look like a bargain? With a P/E ratio of 23 times earnings, we think it could entice more investors back to the stock, especially if the broader global tech stock sell off stabilises.

In the lead up to this earnings report, the Nasdaq 100 had fallen into correction territory. The Fed meeting earlier this evening spooked the Dow, which dropped more than 2%, dragging the Nasdaq lower with it as surging long-end Treasury yields spooked the market. Large growth stocks are in the firing line, so if Microsoft can hold onto this after-market stock price gain, it would be impressive.