Two AI giants diverged in a red Nasdaq: This week, Meta and Microsoft reported broadly similar quarterly earnings that elicited opposite investor reactions, with shares of Meta climbing 10% yesterday and Microsoft plunging 10%—a nearly six-year record drop that erased $350+ billion in value.

Similarities: In their most recent quarters, both companies beat revenue expectations, showed signs that they’re beginning to monetize AI, and posted higher-than-anticipated capital expenditures driven by spending on data centers and other AI infrastructure.

Differences: Meta’s AI capital expenditure—which it plans to double this year—appeared more justifiable than Microsoft’s:

• Meta enjoyed 24% year over year revenue growth, driven by its rock-solid ad business, while Microsoft recorded 17% growth.
• Microsoft’s Azure business, part of its revenue-driving cloud services, dipped slightly quarter to quarter, from 40% growth to 39% growth, possibly spooking investors.
• Crucially, Microsoft relies on OpenAI’s success in a way Meta doesn’t—the ChatGPT maker accounts for nearly half of Microsoft’s contracted future revenue, its earnings showed.

Expert POV: “Concerns about OpenAI’s ability to meet funding commitments” probably contributed to Microsoft’s stock tumble, but the reaction is “overblown,” Evercore ISI analysts said, per CNBC.

Zoom out: Amid fears of a potential AI bubble, Big Tech’s surging capital expenditure investments can easily make investors skittish. The Nasdaq fell yesterday as Microsoft’s nosedive dragged on the broader tech sector.—ML