Microsoft and Meta both reported revenues that exceeded market expectations. However, while Microsoft absorbed the burden of significant artificial intelligence (AI) investments backed by strong cloud growth, Meta faced deteriorating profits and free cash flow due to soaring costs, leading to mixed market evaluations of their AI investment returns.
On July 29, Reuters reported that Microsoft’s revenue for the fourth quarter of its fiscal year rose 18% year-over-year to $90 billion, surpassing the market estimate of $87.62 billion.
The quarterly earnings per share (EPS) also exceeded expectations at $4.74, compared to the forecast of $4.24. However, this EPS figure included a $3.2 billion gain from its investment in AI company Anthropic.
The cloud business drove the performance growth, with the Intelligent Cloud segment, including Azure, generating $39.31 billion, a 31.6% increase from the previous year. Azure's revenue growth rate increased from 40% in the previous quarter to 43%, and annual Azure revenue surpassed $100 billion for the first time. The number of paid users for the AI service 'MS 365 Copilot' also exceeded 30 million.
Quarterly capital expenditures surged 69% year-over-year to $41 billion due to expanded AI infrastructure investments. Free cash flow decreased by 23% to $19.64 billion, but Azure's rapid growth and substantial profit flow alleviated concerns about investment burdens. Consequently, Microsoft’s stock rose more than 8% in after-hours trading.
Meta also reported strong revenue figures. Its second-quarter revenue increased 28% year-over-year to $60.8 billion, exceeding the market estimate of $60.17 billion. However, expenses surged by over 55%, leading to an 8% decline in operating income to $18.78 billion and a 14% drop in net income to $15.85 billion. The EPS was $6.18, falling short of the expected $7.22.
Notably, due to expanded AI infrastructure investments, free cash flow plummeted 91% from $8.55 billion a year earlier to $784 million. While revenue increased, Meta failed to demonstrate corresponding profits and cash generation, which weighed on its stock. As a result, Meta's shares fell by about 10% in after-hours trading.
Mike Proulx, a senior analyst at Forrester, told Reuters, "Meta's AI investments were easy to view positively when profit margins were expanding, but now the cost burden is reflected in performance, making it harder to welcome these investments."
This earnings report highlights that the ability to translate massive AI spending into revenue and profits is what differentiates market evaluations. Microsoft has proven the success of its AI investments by maintaining Azure's growth and high free cash flow despite significant expenditures. In contrast, Meta's rising revenue has not translated into profits and cash flow, raising concerns about the return on its investments.
Stephen Evans, Chief Investment Officer at Fave Finance, told CNBC, "One company is making substantial investments while increasing profits, but the other is allowing AI investment costs to erode profitability. He added, "Microsoft's results show that concerns about growth slowing were overblown," and noted that while Meta's advertising business remains robust, it must demonstrate better cost control and consistent returns on AI investments to regain investor confidence.
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.