Tech Giants Face Stock Tumble Due to Rising AI Costs
Meta and Microsoft Stocks Plummet as AI Expenses Soar
Meta and Microsoft stocks tumbled Thursday as investors weighed in on the tech giants’ substantial AI costs. Despite both companies exceeding Wall Street’s expectations on earnings and revenue, executives warned that their capital expenditures on AI infrastructure will continue to rise, sending investor sentiment into a downward spiral.
Decline in Midday Trading
- Meta: Fell over 4%
- Microsoft: Dropped over 5% in midday trading
These significant decreases in stock value aligned with Meta’s and Microsoft’s recent quarterly earnings reports where leadership emphasized their increasing investments in generative artificial intelligence. According to the executives, these costs are driven by investments in AI chips and other infrastructure, crucial for supporting their robust AI capabilities.
Capital Expenditure Insights
Microsoft:
Microsoft’s capital expenditures nearly doubled in the first quarter of its 2025 fiscal year compared to the year-ago period, reaching a substantial $20 billion. This marked a stark contrast to the $19.8 billion spent during the same period in 2023.
Meta:
Meta’s capital expenditures grew by 36% in its third quarter of the 2024 fiscal year to $9.2 billion. This escalation, amid rising AI infrastructure investments, signals a substantial commitment to its AI initiatives.
AI Industry Market Sentiment
Sarah Li, Meta’s Chief Financial Officer, expounded on the company’s expectations, raising its full-year capital expenditures from $37 billion to $38 billion and forecasting significant growth in 2025. Similarly, Microsoft’s Amy Hood expects increasing capital expenditures driven by AI hardware investments, which might tip investors’ sentiment towards potential revenue growth, but also highlight sector companies’ heightened demand for robust AI capabilities.
Stock Market Reactions and Analyst Insights
While Wall Street’s findings demonstrate substantial increases in capital expenditures, most analysts view this positively regarding the long-term potential for revenue growth in the AI sector. According to Deutsche Bank analysts, Meta’s AI investments already yield tangible improvements to advertising performance, creating a widening gap between the company and its rivals. RBC Capital Markets analyst Rishi Jaluria emphasized the potential for upward stock revisions.
xem’s AI Adoption and Recent Investments
Microsoft’s Microsoft Build conference saw the company’s CEO, Satya Nadella, underscoring the demand for AI. Wednesday’s investors noted Microsoft’s AI spending aims to meet increasing client demands and likely quintuples its cloud division’s sales in the fiscal 2025 second half.
Future Predictions
Despite the immediate downturn, Wall Street anticipates upward revisions for both stocks, with considerable investor optimism centering around AI developments for sustained growth. The scenario could involve elevated demand/adoption rates, driving future AI investments.
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[(Image of Microsoft CEO Satya Nadella during Microsoft Build conference, sourced by JASON REDMOND/AFP via Getty Images](http://www.archynetys.com-img/JASON REDMOND via Getty Images))