Microsoft and Meta Shares Fall Despite Earnings Beat: A Cautionary Tale for AI Investments

Microsoft and Meta, two of the world's tech giants, reported strong earnings for the third quarter, with AI businesses driving growth. However, shares in both companies fell in after-hours trading, spooking traders with their muted outlooks and increased AI spending. This article explores the implications of these developments for investors and the broader tech industry.

Microsoft's AI-powered Azure business grew 33% year-on-year, contributing to the company's 16% revenue increase to $65.59 billion. Meta, meanwhile, saw a 19% rise in revenues to $40.59 billion, driven by its AI progress across WhatsApp, Facebook, and Instagram. Despite these impressive results, both companies' shares fell after executives signaled more significant AI investments with uncertain near-term results.

The key drivers behind the muted outlooks that spooked traders were the reduced earnings outlook and increased AI spending forecasts. Meta's CEO, Mark Zuckerberg, and CFO, Susan Li, both indicated significant future AI investments, with Meta expecting full-year capital expenditures between $38 billion to $40 billion and growth in 2025. Microsoft also forecasted a slight decrease in Azure's growth rate for the current quarter. Traders were seemingly concerned about the lack of near-term results from these increased investments, leading to the share price drop.


The increased AI investments by Microsoft and Meta may impact their long-term growth prospects and potential profitability. While AI has the potential to drive innovation and growth, it also carries risks, including technological obsolescence and regulatory challenges. Investors should monitor the progress of these companies' AI initiatives and consider diversifying their portfolios to include stable, income-generating investments in sectors like utilities and renewable energy.

Meta's earnings report also revealed a 5% year-over-year jump in daily active users (DAUs) to 3.29 billion, missing analyst expectations of 3.31 billion. This miss likely contributed to the 3.18% after-hours drop in Meta's share price. Traders may have been concerned about the slower user growth, as DAUs are a core metric for the health of Meta's business. Despite strong Q3 earnings, the DAU miss could have spooked investors, causing them to reassess their positions in the company.


In conclusion, the fall in Microsoft and Meta shares despite earnings beats serves as a cautionary tale for investors focused on AI ventures. While AI has the potential to drive growth and innovation, it also carries risks and may not translate into immediate profits. Investors should consider diversifying their portfolios to include stable, income-generating investments in sectors like utilities and renewable energy. By adopting an income-focused strategy, investors can secure steady returns and mitigate the risks associated with speculative ventures like AI.