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Investors got their clearest look yet at what Big Tech's AI spending binge actually costs after Microsoft delivered a strong quarterly beat on Wednesday while Meta reported a profit drop.
Microsoft's revenue grew 18% to $90B for the quarter ended in June, with net income up 31%. Azure cloud revenue rose 43%, beating analyst estimates and crossing $100B in quarterly revenue for the first time.
Meta's results told a different story. Revenue rose 28%, but costs jumped 55% to $42B, pushing profit down to $18.3B.
Microsoft's capital expenditures hit $41B for the quarter, a 70% increase year over year. Analysts expect its full fiscal 2027 capex to exceed $230B, while adjusted free cash flow falls to $32B from $62.3B in fiscal 2026.
Crucially, Microsoft stayed cash-flow positive, unlike Alphabet, which recently reported negative cash flows for the first time as a public company.
Meta's cash trajectory is sharper. Analysts expect free cash flow to fall below $1B this year, down from $46B in 2025, and projected it turns negative in 2027 before recovering in 2028.
Meta narrowed its full-year capex forecast to $130B to $145B, lifting the bottom end from a prior $125B projection.
"If you're looking for cash flow, you're not going to find it here. There's a future for them, but the near-term ROI is tough, and it takes a lot of faith to own the stock."
Tim Ghriskey, Ingalls & Snyder
The core tension for both companies is whether AI spending is translating into real growth. Azure's 43% jump offers Microsoft's clearest argument that it is.
But analysts note Google's cloud revenue grew more than 80% last quarter and still couldn't prevent Alphabet's stock from having its worst day in over a year.
Unlike Microsoft, Amazon, and Google, Meta has no cloud infrastructure business to sell computing power to outside customers.
The company is reportedly in talks to lease computing capacity to Anthropic in a deal that could be worth up to $10B, but those talks are ongoing. Meta's third-quarter revenue forecast of $61B to $64B came in below the analyst midpoint estimate of $63.2B.
Microsoft trades at less than 20 times forward earnings, below its 10-year average of 27. Meta trades at less than 15 times. Both look cheap relative to history, but investors aren't buying the discount story until the spending slows or the returns show up.
