Microsoft and Meta are investing heavily in AI, with a combined capital expenditure of $37.4 billion in the last quarter. This spending, primarily focused on AI chips and data centers, exceeded Wall Street’s expectations and doubled compared to last year.
Despite this, Nvidia saw its stock decline, continuing a downward that began after the release of DeepSeek, which reportedly operates at a fraction of the cost of U.S. competitors. The market reaction led to a significant loss in Nvidia’s valuation, wiping out nearly $1 trillion from the U.S. stock market in a day.
Microsoft and Meta, though different in business models, are now allocating about 30% of their annual revenue to capital expenditures—higher than Amazon and Alphabet.
However, investors have been more favorable toward Meta, whose stock has surged 70% in the past year, while Microsoft has lagged with a 10% gain. Microsoft’s earnings report disappointed analysts, with revenue from its Intelligent Cloud segment and Azure falling below expectations.
Additionally, the company issued a weak revenue forecast, citing the negative impact of a stronger U.S. dollar. This led to a nearly 5% drop in Microsoft’s stock in after-hours trading.
Microsoft expects its capital spending to remain steady in the next two quarters, aligning with the market. However, it is not clear whether DeepSeek’s AI advancements will affect long-term spending on AI, which is a significant concern for Nvidia. CEO Satya Nadella noted that AI efficiency improvements have been ongoing for years.
Meta CEO echoed this, emphasizing that significant AI investments will provide a strategic advantage. Meta’s financial position remains strong, with ad revenue rising 21% year over year and an operating margin of seven-year high of 48%. Despite concerns about AI efficiency reducing chip demand, both companies remain committed to their aggressive AI expansion.
