Premarket trade on Thursday saw a 3.5% decline in Microsoft shares after the company released a negative outlook for its cloud business, while Meta saw a 2.6% increase after exceeding quarterly revenue projections.
Days after the Chinese startup DeepSeek shocked the U.S. tech sector with a breakthrough in low-cost AI processing, the CEOs of Microsoft and Meta defended their large investments in AI.
“Short term, we will see a pause in MSFT shares as the 2H reacceleration story for Azure is not playing out,” according to Barclays analysts, but the long-term narrative is still intact.
Microsoft’s AI spending spree, which hasn’t shown any significant payoff, has negatively impacted investor sentiment.
Laptops 1000The stock was also impacted by worries about competition from the cheaper Chinese AI model and weakness in the cloud business.
According to data compiled by LSEG, investors focused on Facebook parent Meta’s fourth-quarter revenue beat despite the company’s prediction that first-quarter sales may not meet forecasts.
“Big picture, META’s multiple could expand over the course of the year as we see its consumer and advertiser sources of utility and repeat engagement and incremental monetization grow,” said Morgan Stanley analysts led by Brian Nowak.
Microsoft’s Azure unit reported 31% revenue growth for the fiscal second quarter, which was slightly less than Visible Alpha’s estimate of 31.8%.
Microsoft gained 12% and Meta increased 65% in 2024. Microsoft’s 12-month forwards price-to-earnings ratio is 31.3, while Meta’s is at 26.22.
