Microsoft Soars, Meta Sinks: Has The AI Narrative Flipped?

Prof G Markets - Vox Media Podcast Network

Microsoft's strong AI-driven earnings fueled investor optimism, while Meta's underwhelming results and lack of clear monetization strategy sparked disappointment despite massive AI spending. The episode explores whether

Key takeaways

• Microsoft reported 18% revenue growth and 32% profit increase, with Azure growing at 43%, accelerating from previous quarters

Transcript preview

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But thanks to modern medicine, paraminopause doesn't have to be one of them. There is still this idea that we have to suffer through it. And I am here to say to anyone listening that suffering not only is unnecessary, there's no metal at the end, but it will derail your health. This week on Explain It to Me, how to navigate the change before the change. Find new episodes, Sundays, wherever you get your podcasts. If money is evil, then that building is hell. The show goes up. Welcome to Profi Markets. I'm Ed Elson. It is July 30th. Let's check in on yesterday's market vitals. The major indices fell sharply as President Trump vowed to resume strikes. on Iran, he told Fox News, quote, we're going to beat the f*** out of them. Brent crude rose back above $90 per barrel. Meanwhile, the Federal Reserve held interest rates steady, sending stock prices even lower. More on that later. And finally, Treasury yields surged. Okay, what else is happening? Two of the largest companies in tech reported earnings yesterday, but investors only rewarded one of them. Meta grew revenue 28%. slightly beating expectations, but its profits fell 13% because costs jumped 55%. Its operating margin dropped from 43 to 31%. And its sales forecast came in under analyst expectations. The stock fell as much as 11% in after-hours trading. Microsoft, on the other hand, had great news. Revenue was up 18% year-over-year. Profits grew 32%. Azure, its cloud business, accelerated to 43% growth, which was faster than last quarter and faster than analysts expected, the stock popped as much as 10% after the bell. What the two have in common is spending. Both are building AI infrastructure at record scale and neither show any signs of slowing down. But investors seem to be more frightened than excited. Microsoft stock is down nearly 20% this year. Metis is down 10%. This raises an important question. How much longer will it? investors fund this build out. Here at Alba's answer. We're speaking with Gil Luria, head of technology research at D.A. Davidson. Gil, good to see you. We'll start with meta, and then we'll get to Microsoft. Investors are not happy with these meta results, at least in after hours. We'll see how it moves throughout the day. What did you make of that earnings report? It was barely passable, so they beat by just a little bit, and they guided below expectations for next quarter. As you pointed out, they're growing expenses faster than revenue. They're growing COPEX faster than revenue. They increased their COPCs guidance by just a little bit, which was a little relief. But overall, it's not an impressive result. And more importantly, Mark Zuckerberg had a whole hour to explain how he's going to monetize the massive AI investments. And he didn't really give us a firm answer. He basically said, we'll figure it out as we go. And that's just not good enough right now. Not with how nervous investors are about this investment. And he just left investors wanting more. That's why you're seeing this disappointment. That was going to be my main question is, has he laid out a plan for how he will actually generate a return on these incredible AI infrastructure investments, which continue to rise? I mean, as you say, he raised the CAPEX by a little but he still raised the CAPEX. Is there anything? I mean, do we have any understanding? There was the rumor, for example, that META would start a cloud business. That was the reporting we heard. Do we not know at all? We know what the pieces are, and he confirmed that that is one of the pieces they have on the board. So one is, hey, we sell a lot more ads for a lot more money. They've always, they've been doing that recently. Let's not forget. Let's be kind to META for a second. They just grew 28%. That's almost twice as fast as Google. There's massive share gainers in the advertising market. That's the part investors would love to own. It's all the other stuff that they're less comfortable with. But what he said is, okay, we do that, right? Then we do have this opportunity to sell compute to others. They have the opportunity to sell enterprise products now. But really what we want to do is be selling compute to consumers. We think we have the biggest opportunity in selling personal assistance to consumers. We think we're going to be better at that than anybody. How those pieces rank, there were a lot of questions on the call, and he wasn't clear about priorities or timing on any of that. But those are the pieces, and they intend to monetize in any of those pieces while continuing to invest. He was asked the question directly, why are you still investing while you turn around and sell capacity? And he said, well, we're selling it for more than we bought it at. So we're going to keep doing that. And it's going to help us fund the build-out, which is somewhat satisfactory. Help me understand what's going through his mind and his team's mind. Because this is the multi-trillion dollar question. He knew this was coming. This is the only question shareholders have. This is the question everyone has. And he comes out and seems to fill a bus. I mean, I can only glean from that. Maybe he actually doesn't know what they're doing with that data center capacity. Like, what do you think is actually going through his head? Well, we have to remember that Mr. Zuckerberg has controlling interest in meta. He's the owner-founder, and he treats meta as such. And when you're invested in meta, you're along for the ride. This is much like Elon Musk companies, especially SpaceX, right? You no longer controls Tesla. He still controls SpaceX. You're on for the ride. And if Mark Zuckerberg wants to invest because he wants to win the AI race and compete with Anthropic and Open AI, he gets to decide to do that. He doesn't have the type of governance than many of the other companies that we talk about. We'll talk about a good one, Microsoft soon. And so he can just decide to do that. This has been much to the frustration of investors over this. This is why MetaTrades at such a low multiple of earnings is because it's Mr. Zuckerberg's show, and he gets to decide how to run it. Let's pivot to Microsoft, a very different story. Investors are very excited. What did you make of Microsoft's earnings? This is a narrative-defying result. So Microsoft, for most of this year, has been cast aside as losing an AI because AI is so good that it's going to ruin the software business, and then AI is so bad that they're, They're wasting money investing in data centers. And they got the raw end of both of those narratives. And what they just reported will break both of those narratives. Their software business is doing very well. On the office side, on the commercial side, on the infrastructure software side, Azure accelerated