Microsoft (NASDAQ: MSFT) climbed 8% after Wednesday's closing bell, while Meta Platforms (NASDAQ: META) sank 10%, as the two tech giants delivered sharply contrasting quarterly earnings reports shaped by their artificial intelligence strategies. The results offered investors one of the clearest side-by-side tests yet of whether the industry's massive AI capital deployment is translating into near-term profit growth, with Microsoft demonstrating tangible monetization through cloud and Copilot uptake and Meta showing revenue strength but margin compression from rising infrastructure and legal costs.

Microsoft reported adjusted earnings of $4.74 per share for its fiscal fourth quarter ended June 30, 2026, exceeding LSEG's $4.24 expectation. Sales totaled $90.01 billion, surpassing the $87.62 billion projection. Meta, meanwhile, earned $6.18 per share—well below the expected $7.22—even though its revenue of $60.80 billion edged past the $60.17 billion consensus.

Microsoft Cloud Revenue Grows as AI Investments Hold Steady

Microsoft's total quarterly revenue rose 18% year-over-year to approximately $90.0 billion. On a constant-currency basis, growth was 17%. Operating profit increased 18% to $40.6 billion.

GAAP net income climbed 31% to $35.77 billion, up from $27.23 billion the prior year. Adjusted net income increased 22% to $35.29 billion from $28.81 billion. GAAP diluted earnings rose 32% to $4.81 from $3.65, while adjusted diluted earnings grew 23% to $4.74 from $3.86.

The company excluded the impact of its OpenAI investment from its adjusted figures. That adjustment reduced the latest quarter's net income by $480 million and cut earnings by $0.07 per share. In the year-ago period, the OpenAI effect had added $1.58 billion to net income and $0.21 per share. The annual OpenAI net swing was $2.06 billion, with a $0.28 per-share swing in earnings. The reversal underscores how volatile equity-method accounting for AI startup holdings has become a recurring variable in Microsoft's reported results.

Several one-time items added $0.27 per share compared with Microsoft's April 29 guidance. A $3.2 billion gain from its Anthropic investment and lower voluntary retirement costs contributed positively, while severance charges and Xbox write-downs offset part of that gain. Microsoft stated that even excluding those items, sales, operating profit, and earnings exceeded its forecasts.

Chairman and CEO Satya Nadella said the company is "advancing the frontier on the cost-to-outcome curve, ensuring every customer can turn tokens into business results." He also noted that annual Azure sales surpassed $100 billion for the first time and that Microsoft 365 Copilot reached 30 million paid seats—two milestones that position Microsoft as the leading vendor monetizing generative AI at enterprise scale, with Azure's annualized run rate placing it firmly alongside Amazon Web Services and Alphabet's Google Cloud in the three-way cloud race.

Chief Financial Officer Amy Hood described the performance as "a strong quarter to close out the fiscal year, highlighted by Microsoft Cloud revenue of $59.3 billion, up 27% year-over-year." (Microsoft official source)

Meta Raises Spending as Legal Costs and Layoffs Squeeze Profit

Meta's second-quarter sales grew 28%, rising from $47.52 billion to $60.80 billion. Absent currency fluctuations, revenue would have increased 27%. In June, its family of apps averaged 3.60 billion daily users, up 3% year-over-year. Ad impressions jumped 14%, and average ad prices climbed 12%—indicating that Meta's AI-driven ad-targeting improvements continue to support pricing power even as the company ramps infrastructure spending at an unprecedented pace.

Total costs surged 55% to $42.03 billion, compared with $27.08 billion a year earlier. That figure included $2.40 billion in legal fees and $1.18 billion in severance tied to the May 2026 workforce reduction.

Operating income fell 8% to $18.78 billion from $20.44 billion, pushing the operating margin down to 31% from 43%. Tax expense rose 32% to $2.91 billion, with the effective tax rate climbing to 16% from 11%. Net income declined 14% to $15.85 billion from $18.34 billion, and diluted earnings fell 13% to $6.18 from $7.10.

Founder and CEO Mark Zuckerberg said AI "is accelerating our core business today, powering our next generation of products, and opening the door to entirely new enterprise opportunities." He added, "The results are already showing, and I'm optimistic about the potential ahead."

Capital spending, including finance-lease principal payments, reached $31.08 billion. Meta distributed $1.35 billion in dividends and associated payments. The company held $90.26 billion in cash, marketable securities, and equivalents at the end of June, against $83.66 billion in long-term debt. Operating cash flow was $31.86 billion, while free cash flow totaled $784 million—a fraction of operating cash flow that illustrates how aggressively the company is pouring capital into data centers, chips, and networking gear to support its AI roadmap.

Forward Guidance

Meta projected third-quarter revenue between $61 billion and $64 billion, with currency expected to create a 1% drag on year-over-year growth. Full-year expenses are now set at $165 billion to $169 billion after the legal charge raised the lower end of the range.

Management said it still expects 2026 operating income to surpass 2025. Capital spending is forecast at $130 billion to $145 billion, a tighter band than the prior $125 billion to $145 billion range. That level of annual investment would rank among the largest single-company infrastructure build-outs in corporate history, roughly matching the combined capex budgets of several Fortune 100 industrials. The expected tax rate for the remainder of 2026 was raised to 15%–17% from 13%–16%.