Money doesn’t solve all problems, but $37.4 billion should solve a few.
That was what Microsoft and Meta Platforms have in combined capital spending in the December-ended quarter, according to the companies’ earnings reports Wednesday afternoon. The expenditures were higher than what Wall Street had anticipated, not to mention nearly double from the same period the previous year. The bulk of it is going to chips and data centers to power generative artificial intelligence services.
That should have been great news for Nvidia. But the market’s prime AI chip maker saw its shares slip in after-hours trading following the reports of two of its largest customers. And that follows a bruising run that has already clipped around 15% off the company’s stock price since last week, when a Chinese AI startup published claims about developing an advanced AI model at a fraction of the computing cost required by U.S. competitors. Nvidia is one of only three companies valued at more than $3 trillion, so such a drop leaves a wide mark. About $1 trillion of the U.S. stock market’s value was wiped out on Monday alone, according to Dow Jones Market Data.
Microsoft and Meta are two very different businesses with one big thing in common. Both are now spending about 30% of their annual revenue on capex, which is a much bigger percentage than what its rivals Amazon.com and Google’s parent, Alphabet, have committed. But investors have given Facebook’s company a much longer leash. Meta’s stock price has surged around 70% over the past 12 months, compared with a market-lagging gain of around 10% for Microsoft. That has put some pressure on the software titan to show that its AI investments will pay off soon.
Wednesday’s report didn’t quite do that. Revenue and operating earnings in Microsoft’s Intelligent Cloud segment came in below Wall Street’s forecasts, as did reported revenue growth for its Azure public cloud service. The company also issued a disappointing revenue forecast, adding that the stronger U.S. dollar will have a more negative impact than what the company estimated three months ago. Microsoft’s stock slipped nearly 5% in after-hours trading.
As far as capital spending goes, Microsoft said it expects the next two quarters to be similar to the $22.6 billion it spent in the last quarter, which is roughly in line with Wall Street’s expectations. The company didn’t say if DeepSeek’s breakthroughs would eventually lead to a big reduction in spending on AI computing—the key fear driving Nvidia’s selloff.
“We ourselves have been seeing significant efficiency gains in both training and inference for years now,” said Chief Executive Officer Satya Nadella on Microsoft’s call, adding, “As AI becomes more efficient and accessible, we will see exponentially more demand.”
Meta’s Mark Zuckerberg says the ability to invest heavily in capex will be a strategic advantage over time.
Meta boss Mark Zuckerberg, for his part, doesn’t seem inclined to tap the spending brakes just yet either. On his own call, he said the ability to invest heavily in capex will be a “strategic advantage” over time. “It’s possible that we’ll learn otherwise at some point, but I just think it’s way too early to call that,” he added.
Meta had already announced plans last week to significantly boost its capex spending for this year, and its social network business is still generating plenty of cash to support that. The company’s ad revenue jumped 21% year over year in the fourth quarter to $46.8 billion, while its operating margin hit a seven-year high of 48%. The company even managed to lose $1 billion less than analysts had been expecting in its Reality Labs segment. With plans to drop at least $60 billion this year on its AI build-out, every little bit helps.
Write to Dan Gallagher at dan.gallagher@wsj.com