AI boosts Meta and Microsoft Q3 earnings, but outlook sours stock prices

As a seasoned analyst with a background in technology and finance, I find myself intrigued by the recent after-hours trading performances of Meta Platforms Inc. and Microsoft Corp, despite their strong Q3 earnings reports on October 30th. The market’s initial enthusiasm seems to have waned upon hearing the executives’ forecasts for more AI spending and reduced earnings outlook.

Despite reporting robust Q3 earnings on October 30th, the stocks of Meta Platforms Inc. and Microsoft Corp experienced a decline in extended trading sessions. This was due to executives lowering their future profit expectations and projecting increased investment in artificial intelligence (AI).

On October 30, it was reported that Meta’s Q3 revenues grew by 19% compared to the same period last year, reaching an impressive $40.59 billion. This figure surpassed the predictions of financial analysts who expected only $40.21 billion. Additionally, the company’s earnings per share (EPS) were $6.03, which was higher than the estimated $5.19.

As a crypto investor, I’m thrilled to share that Microsoft’s latest financial report has shown some impressive growth. Their revenues for this year surpassed last year’s by an astounding 16%, reaching an impressive figure of $65.59 billion! This is more than what analysts had anticipated, as they expected only $64.41 billion. Moreover, the company exceeded expectations in Earnings Per Share (EPS), with a strong performance of $3.30 against the projected $3.08. This positive news underscores Microsoft’s robust financial health and promising future prospects.

The duo’s profits emerge following their, along with other major U.S. Tech giants like Google, Apple, and Amazon, substantial investments in Artificial Intelligence (AI). They are now debuting novel AI models or introducing innovative hardware, reflecting their commitment to this rapidly advancing technology.

This year, Meta introduced Meta AI into its widely-used apps like WhatsApp, Facebook, and Instagram. As a result, Mark Zuckerberg, the company’s founder and CEO, commented that the organization had a successful quarter due to advancements in artificial intelligence.

Simultaneously, the revenue from Microsoft’s AI-driven Azure division surged by 33% compared to the previous year, outperforming predictions that it would expand about 29%.

As a crypto investor, I’m thrilled about the progress our AI business is making. In the upcoming quarter, we’re forecasted to exceed an annual revenue pace of $10 billion, a significant achievement that makes it the swiftest in our company’s history to hit this milestone. This news was shared by our CEO, Satya Nadella, during an earnings call.

Consequently, the stocks of both firms experienced a decline during after-hours trade on October 30, following their initial rise.

According to Google Finance’s data, META experienced a decrease of 3.18%, going from a closing price of $591.80 down to $573. Similarly, MFST saw a decline of 3.71% after its close at $432.53, ending up at $416.50.

AI boosts Meta and Microsoft Q3 earnings, but outlook sours stock prices

It appears that traders found the future spending plans for AI from both companies to be unsettling, as they indicated significant investment without immediate benefits expected.

During the earnings discussion, Zuckerberg mentioned that their AI projects will necessitate substantial infrastructure and further investments. He also stated that they anticipate making significant ongoing investments in this area, but have not yet determined the exact budget.

According to Susan Li, the financial head, their aim is to make Meta AI an “engaging and beneficial user experience” and she hinted at potential revenue-generating chances in the future.

Meta anticipates that its total annual spending on capital investments for the current year will range from $38 billion to $40 billion. Furthermore, it projects a substantial increase in capital expenditures by 2025.

Meta’s stock price decreased due to falling short of projected Daily Active Users (DAUs), an essential measure for assessing its business performance. Instead, DAUs increased by 5% year-on-year to reach an average of 3.29 billion, which was below the forecasted 3.31 billion figure.

In the meantime, Microsoft reported a projection for this quarter’s growth of its main AI service, Azure, which is anticipated to increase by 31% to 32%. This forecast represents a slight decrease compared to the 33% growth it achieved in the previous quarter.

The company predicts its Q3 revenue will fall within a range of $68.1 billion to $69.1 billion, which is lower than the anticipated revenues by analysts, at approximately $69.89 billion.

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