Meta, Microsoft stocks fall as Big Tech’s AI splurge prompts investor caution.

Stocks of Meta ( META ) and Microsoft ( MSFT ) fell on Thursday as investors weighed in on AI debt, which is growing at an all-time high.

Meta sank 4%, while Microsoft fell 6%. In their quarterly earnings reports released last night, both companies beat Wall Street expectations on earnings and revenue, but investors appeared disappointed as executives said on calls and analysts that they expect the cost of capital will continue to increase.

Sentiment weighed on other Big Tech names, including Amazon ( AMZN ) and Apple ( AAPL ), which are poised to wrap up the week’s megacap earnings on Thursday. AI darling Nvidia ( NVDA ) also stumbled, with its stock down 4.7% at the market close.

Investments by Big Tech firms in recent years have been largely driven by their investments in artificial intelligence tools, such as AI chips. Microsoft’s financial expenses nearly doubled from last year to $20 billion during its first fiscal quarter of 2025, while Meta’s expenses rose 36% to $9.2 billion at the same time (its third quarter of 2024).

Meta raised the low end of its guidance for full-year expenses from $37 billion to $38 billion, and CFO Susan Li said the company expects “significant growth of spending by 2025.”

For its part, Microsoft CFO Amy Hood said the company expects capital expenditures to increase in the current quarter as the company increases investment in AI tools in response to “signs of demand for AI, ” which he says will measure its maximum limit. The company provided a weaker-than-expected outlook for its second fiscal quarter (current period).

Microsoft’s soft second-quarter guidance came in part due to capacity constraints, as it faces delays in the delivery of AI chips to power data centers where it runs its AI software, unlike any reduction in demand, analysts noted Thursday.

CEO Satya Nadella said Wednesday, “We’ve had a lot of external problems because this need has come up so quickly, right?”

While investors have expressed concern about the disconnect between Big Tech firms’ AI spending and actual consumer demand for its AI products, Microsoft and Meta have shown that the demand is there. true, and Wall Street analysts largely agreed.

Meta says it sees “rapid adoption of Meta AI.”

“We are very optimistic about the opportunities that lie ahead of us and we believe that investing now in infrastructure and talent will not only accelerate our growth but increase the opportunity to increase profit in every area,” said Li.

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Microsoft’s Hood noted that the company’s push for AI spending is tied to “growing demand” for its current AI products, and he expects sales of Microsoft’s cloud division to accelerate in the quarter. the second of its fiscal year 2025 as “financial investments make an increase. with the power of AI available.”

Hood added, “About half of our cloud and AI-related revenue continues to be long-term assets that will support revenue generation for the next 15 years and beyond. .”

For their part, Wall Street analysts were positive about the companies’ performance in the AI ​​space, with most of them reiterating their Buy ratings on the stock Thursday, according to Bloomberg data. .

Analysts at Deutsche Bank said in a note Thursday that they see Meta’s AI investment already paying off.

“For us, it’s becoming increasingly apparent that increased investment in core AI (and Gen AI) is having a positive impact on marketing performance, which is creating a growing gap between of Meta and its peers,” they wrote.

In other words, Deutsche Bank analysts say they see “Microsoft delivers significant AI value for consumers.”

“At the top level, the AI ​​business is on track to surpass $10 billion in revenue next quarter in just 2.5 years, making it the fastest in the company’s history to reach this milestone and in fairness it might be a lot of money,” they said.

RBC Capital analyst Rishi Jaluria reiterated the company’s bullishness on the stock: “While investors may be caught off guard by the prospect of slower Azure growth combined with higher CapEx, we see a path towards higher developments, and it could be a smaller customer.”

Meanwhile, Wedbush analyst Dan Ives wrote in a note to investors: “We are exiting this quarter more bullish (not less) after seeing this growth in AI and Copilot’s revenue play out in real time for Microsoft. “

Laura Bratton is a reporter for Yahoo Finance. Follow her on X @LauraBratton5.

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