Microsoft passes Wall Street’s AI test but Meta falls short

Meta shares fell as much as 10% in extended trading on Wednesday, 29 July, while Microsoft rallied more than 8%, as investors delivered sharply different verdicts on two of the technology industry’s largest artificial intelligence spending programs.

The contrast showed that Wall Street is not necessarily opposed to heavier AI investment. Investors increasingly want evidence that the spending is producing revenue, protecting margins or creating businesses capable of financing the next round of expansion.

Meta reported quarterly revenue of $60.8 billion, up 28% from a year earlier, as its advertising business continued to grow. Ad impressions increased 14%, while the average price per advertisement rose 12%.

The concern was below the top line. Costs and expenses jumped 55% to $42 billion, operating income declined 8% and free cash flow fell 91% to $784 million. Meta also narrowed its forecast for full-year capital spending to between $130 billion and $145 billion, raising the bottom of its previous range by $5 billion.

Not all of the deterioration resulted from AI. Meta recorded $2.4 billion of legal charges and $1.18 billion of severance costs during the quarter. Excluding those items, the company said operating income would have increased 9%. Even so, the results made the expanding cost of its infrastructure more difficult for investors to overlook. Meta said capital expenditure, including principal payments on finance leases, reached $31.1 billion during the quarter.

Meta is already using AI to improve its established advertising products. The annual revenue run rate for its Advantage+ advertising tools has exceeded $75 billion, while more than nine million small businesses use at least one of its generative AI creative tools.

The uncertainty concerns the newer businesses Meta hopes to build on top of its models and computing infrastructure. Chief Executive Mark Zuckerberg discussed personal AI agents, tools for businesses, paid access to models and the possibility of providing computing capacity to outside customers.

When analysts asked which of those opportunities could produce a material return on investment in 2026 or 2027, Zuckerberg did not identify one. He said the company was seeing meaningful progress across several areas and would have more to share soon. Meta also declined to provide a capital-spending forecast for 2027.

Meanwhile, Microsoft delivered a clearer connection between investment and revenue. Its quarterly capital expenditure reached $41 billion, exceeding Meta’s spending, but Azure and other cloud-services revenue increased 43%. Microsoft Cloud revenue rose 27% to $59.3 billion, while the company’s contracted commercial backlog climbed 84% to $678 billion.

Paid Microsoft 365 Copilot subscriptions exceeded 30 million, up from more than 20 million in the previous quarter. Microsoft also said Azure generated more than $100 billion in annual revenue for the first time.

Chief Financial Officer Amy Hood said additional data-center capacity brought online during the quarter was quickly monetized. Microsoft also stressed that nearly 90% of its cloud revenue comes from customers outside the small group of companies developing frontier AI models, helping address concerns that demand is concentrated among a handful of heavily financed laboratories.

Microsoft generated $19.6 billion of free cash flow during the quarter. That was down 23% from a year earlier, but remained ahead of market expectations and provided investors with substantially more evidence that the company’s AI infrastructure is supporting a large existing business. Microsoft reported quarterly revenue of $90 billion, up 18%.

Alphabet had received a more mixed response when it reported results on 22 July. Google Cloud revenue surged 82% to $24.8 billion, while the division’s operating income more than tripled to $8.8 billion. Its backlog reached $514 billion, showing that Google, like Microsoft, is converting some of its AI spending into cloud contracts.

However, Alphabet raised its 2026 capital-spending forecast by $15 billion to between $195 billion and $205 billion. Quarterly expenditure reached $44.9 billion, contributing to negative free cash flow of $5.9 billion, the company’s first quarterly cash burn on record. Alphabet shares fell about 3% in extended trading despite the strong cloud growth. Reuters reported that weaker-than-expected earnings also weighed on the stock.

Tesla encountered the same skepticism from a less favorable starting point. The company is directing more than $25 billion of capital expenditure this year toward AI infrastructure, robotaxis, autonomous-driving technology, the Cybercab and its Optimus robot.

Tesla’s quarterly capital spending jumped 142% to $5.8 billion, pushing free cash flow to negative $1.1 billion. Operating income declined 57%, and its operating margin narrowed to 1.4% as profitability in the core automotive business remained under pressure. The shares fell about 4% in extended trading after the 22 July results. Reuters reported that adjusted earnings also missed analysts’ estimates.

Unlike Microsoft and Google, Tesla cannot yet point to a large AI cloud or software business generating returns from the spending. Investors must instead accept Chief Executive Elon Musk’s argument that autonomous vehicles and humanoid robots will eventually justify the investment.

The four results suggest that the market’s test is no longer simply whether a company is spending aggressively on AI. Microsoft was rewarded because its revenue growth, backlog and Copilot subscriptions supplied an immediate answer about monetization. Alphabet presented strong commercial demand but weaker cash generation. Meta and Tesla, meanwhile, are still asking investors to place greater weight on businesses that have yet to reach meaningful scale.