Amazon and Meta—Nothing Artificial About These Results

The e-commerce titan and social networking giant both posted strong fourth-quarter results late Thursday. The two beat Wall Street’s consensus targets for both revenue and operating income by wider margins than Microsoft and Google-parent Alphabet did with their respective December quarter reports earlier in the week. That contributed to Meta and Amazon shares surging 15% and 7% respectively in after-hours trading, despite already enjoying major run-ups over the past 12 months. Microsoft and Alphabet fell 2.7% and 7.5%, respectively, the day after their reports.

Apple, once the biggest big tech of all, also ultimately turned in a disappointing report. The company did manage to beat Wall Street’s projections for its all-important iPhone revenue, which rose 6% year over year to $69.7 billion. But sales in its Greater China segment slid 13% year over year—the worst drop in more than three years. That seemed to confirm growing fears about the company’s weakening position in that crucial market. Apple also gave a projection suggesting overall revenue for the March quarter could come in below $90 billion—about 6% short of Wall Street’s expectation for the period. Apple’s shares slid about 3% following the results and the company’s call with analysts.

The irony of Apple’s post-market reaction is that the iPhone maker came into the latest earnings season with the lowest expectations of the bunch. Its shares were up 28% over the last 12 months—less than half the gains logged by fellow $3 trillion behemoth Microsoft and the only one of the five to actually lag the Nasdaq in that time. But Apple is also the only one of the five that derives most of its revenue from the highly cyclical hardware market. It has also notably sat out of the race over generative AI technology. The biggest new thing the company has going lately is a $3,500 augmented reality headset called the Vision Pro that goes on sale Friday. It has generated lots of press but limited developer support.

Mark Zuckerberg even managed to steal some of that thunder on Thursday. Meta’s CEO credited strong sales of its Quest VR and AR headsets for boosting revenue at its Reality Labs unit 47% year-over-year, passing the $1 billion mark for the first time.

But that is still a small business for the Facebook parent, and a money-losing one at that. More important was the company’s $38.7 billion in advertising revenue during the quarter. It grew by 24% year-over-year, a percentage point better than the already strong growth seen in the prior period. That drove the company’s operating income to $16.4 billion, beating Wall Street’s target by 7%. Meta also announced its first-ever dividend and a fresh $50 billion stock buyback after annual free cash flow reached a record of $43 billion.

Amazon, meanwhile, managed to continue its recent run of sharply improving profitability with revenue growth also pulling out of the slump it hit a year ago. And that recovery wasn’t just on the back of its lucrative cloud computing business; North American retail margins in the fourth quarter hit their highest point in five years, despite the onslaught of fresh competition from Chinese e-commerce players like Temu, Shein and TikTok Shop. Advertising revenue growth is also picking up, rising 27% year over year to $14.7 billion and making Amazon a not-too-distant number three in that market after Meta and Google.

The challenge for all five of the big tech companies will be building on a year of improved sales and profit growth while also trying to live up to the AI hype that has swelled their combined market values by 68% since the beginning of 2023. Even Apple is throwing its hat into that ring, with CEO Tim Cook describing AI as something “where we continue to spend a tremendous amount of time and effort, and we’re excited to share the details of our ongoing work in that space later this year." Meanwhile, Amazon CEO Andy Jassy devoted more than 800 words to the topic during his opening remarks on his company’s call Thursday, calling AI “an area of pervasive focus and investment" for the company.

And what an investment it will be. Amazon, Microsoft, Google and Meta had a combined $43.5 billion in capital expenditures during the fourth quarter, up 9% year over year. All four clearly signaled that the number is going higher this year as they work to build out AI capabilities. Meta raised the high end of its projected capex range for 2024 to $37 billion—a record sum that could even come close to matching the outlay of its much larger rival Google.

Investors have so far signaled a willingness to go along with such spending given the AI opportunity. As Google and Microsoft showed, though, superb results today make big investments in the future a lot more palatable.

Write to Dan Gallagher at dan.gallagher@wsj.com