Microsoft delivered robust quarterly growth driven by surging demand for its artificial intelligence products, while Meta's escalating AI expenditures overshadowed record sales and pushed its shares lower.

The two American technology giants released their quarterly earnings after markets closed on Wednesday, giving investors a clearer sense of whether the billions being channelled into AI are beginning to pay off. The results arrive amid an industry-wide inflection point, with the largest cloud and social media companies collectively committing hundreds of billions of dollars to data centre buildouts and AI chip procurement, and Wall Street increasingly demanding evidence that the outlays will translate into durable revenue.

Microsoft posted revenue of $90bn (£67bn), an 18 per cent increase year-on-year, with overall profits climbing 31 per cent to $35.8bn. Revenue from its cloud platform Azure grew 43 per cent, and the company's Microsoft 365 Copilot has surpassed 30 million paid users.

Meta, by contrast, reported record quarterly revenue of $60.8bn (£45.5bn), up 28 per cent, but saw profit drop 14 per cent to $15.8bn as expenses surged 55 per cent. The Facebook parent also raised its capital expenditure forecast for the year to between $130bn and $145bn.

Chris Beauchamp, chief market analyst at IG, said Microsoft "appears to be back on track," noting that the strong rise in cloud revenue reinforced the company's recent momentum. Meta's results, he said, painted a different picture, with "eye-watering spending levels still making investors nervous."

Microsoft Bets on Corporate AI Adoption

Microsoft said businesses are increasingly deploying AI tools across whole organisations rather than confining them to limited pilot programmes — a transition the company argues validates the industry's massive investment in the technology.

Charles Lamanna, Microsoft's executive vice president for Copilot, Agents and Platform, told City AM that the company had reached a "tipping point," with clients scaling up from trials of a few hundred employees to rollouts encompassing tens of thousands of workers.

"Whenever you see those big numbers of very large Copilot adoption from our customers, it's usually safe to assume that's a reflection of moving from experimentation to production," he said, citing deployments of between 50,000 and 500,000 employees.

Lamanna identified technology firms, banks, and pharmaceutical companies as the fastest adopters of AI, while manufacturers and healthcare providers had accelerated their usage over the past year. He pointed to NHS rollouts as well as deployments at Volkswagen and Stellantis as examples of organisations progressing beyond early testing.

He dismissed concerns that AI reliability was impeding adoption. "A lot of the big blockers are resolved," Lamanna said. "We've definitely started to reach a tipping point."

Tracy Woo, principal analyst at Forrester, said Microsoft's latest results indicated that its investment in AI infrastructure was "beginning to deliver returns," bolstered by growing demand for Copilot and sustained expansion in its cloud business. However, she cautioned that questions persist over whether Microsoft can maintain profit margins as it continues pouring capital into new data centres.

The diverging market reactions to Microsoft and Meta underscore a central tension in the current AI cycle: investors appear willing to reward heavy capital deployment when accompanied by clear revenue traction, as seen in Azure's growth and Copilot adoption, while punishing comparable spending when the monetisation pathway remains less defined.

Meta's Rising Costs Weigh on Sentiment

For Meta, free cash flow plummeted to $784m from $8.55bn a year earlier, despite another quarter of record sales. Reality Labs, the division responsible for the company's virtual reality headsets and AI glasses, posted a quarterly loss of $4.6bn.

Meta's elevated spending reflects a broader pattern across the largest technology firms, with rivals including Amazon, Alphabet, and Microsoft all significantly increasing capital expenditures this year to secure AI computing capacity, primarily reliant on Nvidia's data centre chips.

Kathleen Brooks, research director at XTB, said investors had looked past Meta's revenue growth and zeroed in on the company's mounting costs and diminished cash generation as it ramps up spending on AI infrastructure.

"Meta's cash burn rate also looks unsustainable, especially since recent announcements that data centres in Alberta and Louisiana would cost nearly $60bn to build," she said.