Microsoft Soars, Meta Sinks: Has The AI Narrative Flipped?
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What is the main topic discussed in this episode?
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Welcome to Prof G Markets.
I'm Ed Elson. It is July 30th. Let's check in on yesterday's market vitals. The major indices fell sharply as President Trump vowed to resume strikes on Iran. He told Fox News, quote, we're going to beat the f*** out of them. Brent crude rose back above $90 per barrel. Meanwhile, the Federal Reserve held interest rates steady, sending stocks even lower. More on that later. And finally, Treasury yields surged. Okay, what else is happening? Two of the largest companies in tech reported earnings yesterday, but investors only rewarded one of them. Meta grew revenue 28%, slightly beating expectations, but its profits fell 13% because costs jumped 55%. Its operating margin dropped from 43% to 31%, and company sales forecasts came in under analyst expectations.
The stock fell as much as 11%. in after-hours trading. Microsoft, on the other hand, had great news. Revenue was up 18% year-over-year, profits grew 32%. Azure, its cloud business, accelerated to 43% growth, which was faster than last quarter and faster than analysts expected. The stock popped as much as 10%. after the bell. What the two have in common is spending. Both are building AI infrastructure at record scale and neither show any signs of slowing down. But investors seem to be more frightened than excited. Microsoft stock is down nearly 20% this year. Meta's is down 10%. This raises an important question. How much longer will investors fund this build-out? Here to help us answer, we're speaking with Gil Luria, Head of Technology Research at DA Davidson.
Gil, good to see you. We'll start with Meta and then we'll get to Microsoft. Investors are not happy with these meta results, at least in after hours. We'll see how it moves throughout the day. What did you make of that earnings report?
It was barely passable. So they beat by just a little bit and they guided below expectations for next quarter. As you pointed out, they're growing expenses faster than revenue. They're growing CapEx faster than revenue. They increased their CapEx guidance by just a little bit, which was a little relief. But overall, it's not an impressive result. And more importantly, Mr. Zuckerberg had a whole hour to explain how he's going to monetize the massive AI investments. And he didn't really give us a firm answer. He basically said, we'll figure it out as we go. And that's just not good enough right now. Not with how nervous investors are about this investment. And he just left investors wanting more. That's why you're seeing this disappointment.
That was going to be my main question is, has he laid out a plan for how he will actually generate a return on these incredible investments? AI infrastructure investments, which continue to rise. I mean, as you say, he raised the capex by a little bit, but he still raised the capex. Is there anything? I mean, do we have any understanding? There was the rumor, for example, that Meta would start a cloud business. That was the reporting we heard. Do we not know at all?
We know what the pieces are, and he confirmed that that is one of the pieces they have on the board. So one is, hey, we sell a lot more ads for a lot more money. They've been doing that recently. Let's not forget. Let's be kind to Meta for a second. They just grew 28%. That's almost twice as fast as Google.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:01–6:07
2
How did Microsoft and Meta earnings diverge and why did investors react differently?
6:07–6:32
3
Why did Meta's revenue growth fail to reassure investors despite a 28% uptick?
6:32–15:00
4
What monetization plans did Mark Zuckerberg present for Meta's AI investments?
15:00–25:43
5
Why are investors worried about Meta's capex and governance compared to other tech giants?
25:43–31:43
Speakers
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