Tech Giants’ AI Ambitions: A Tale of Two Fortunes
Microsoft’s Cloud Conundrum
Investors sent Microsoft’s shares tumbling 4% on Thursday, as the company’s substantial artificial intelligence (AI) investments failed to yield a significant boost in its cloud revenue. This disappointing performance came despite CEO Satya Nadella’s defense of the company’s AI bets, which were made public just days after Chinese startup DeepSeek announced a groundbreaking achievement in affordable AI.
Azure’s Sluggish Growth
Microsoft’s key cloud business, Azure, has been experiencing a slowdown, missing market estimates for quarterly revenue growth and providing a lackluster third-quarter forecast. This underwhelming performance has led analysts to question the company’s focus on AI workloads at the expense of its core Azure business. “The second-half re-acceleration story for Azure is not playing out,” noted Barclays analyst Raimo Lenschow.
Meta’s AI-Driven Success
In contrast, Meta’s shares rose 2% on Thursday, as CEO Mark Zuckerberg’s assurances about the company’s growth prospects and AI investments resonated with investors. A better-than-expected 21% jump in revenue helped alleviate concerns around Zuckerberg’s plans to spend up to $65 billion on AI this year. Analysts praised Meta’s ability to leverage AI to drive engagement and pricing growth, a rare feat in the industry.
A Stark Contrast in Market Performance
The divergent fortunes of Microsoft and Meta were reflected in their market performance. At least 15 brokerages raised their price targets on Meta, which boasts a 12-month forward price-to-earnings ratio of about 26.22. The company’s stock surged 65% last year, outperforming its Big Tech peers. In contrast, Microsoft’s stock lagged behind, with just a 12% gain last year. The company’s market value was set to take a $136 billion hit, while Meta was poised to add $29 billion to its market value.
Analysts Weigh In
Rosenblatt analyst Barton Crockett noted, “Nobody is more bulled up on AI than Meta. And Meta might have more benefits to show from AI than anyone.” MoffettNathanson analysts praised Meta’s ability to sustainably drive engagement and pricing growth using AI, a rarity in the industry’s history. On the other hand, J.P. Morgan analyst Mark Murphy expressed concerns about Microsoft’s Azure-acceleration story, saying it had “been hit by shrapnel and is losing altitude.”
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