Microsoft and Meta Earnings to Reveal AI Investment Returns as Spending Continues
Investors seeking clarity on the returns from massive artificial intelligence investments will find important indicators when Microsoft Corp. and Meta Platforms Inc. release their quarterly earnings this week. These technology leaders represent the first among America's four largest AI spenders to report financial results, with Alphabet Inc. and Amazon.com Inc. scheduled to follow next week.
Substantial Capital Expenditures Raise Profitability Questions
According to data compiled by Bloomberg, these four technology giants are projected to have approximately US$505 billion in combined capital expenditures this year alone. This represents a significant increase from the roughly US$366 billion estimated for 2025. As Wall Street grows increasingly concerned about profitability from these substantial AI investments, the expenses are beginning to be viewed as potential risks for these high-stakes investors.
The market's apprehension is already evident in stock performance. Since the companies last reported earnings on October 29, Microsoft's shares have declined by 11 percent, while Meta's stock has dropped approximately 10 percent. This contrasts with the broader S&P 500 index, which has gained 1.6 percent during the same period.
Investor Focus on Return on Investment
Jonathan Cofsky, a portfolio manager at Janus Henderson with approximately US$480 billion in assets under management, emphasized the growing investor scrutiny. "Every quarter investors are going to be looking to see what the ROI is on that spend," Cofsky noted. His firm maintains substantial positions in both Microsoft and Meta.
Any indication that these technology companies plan to exceed anticipated AI development spending could further pressure their stock prices. Simultaneously, such announcements would likely benefit companies receiving this substantial investment, including chipmakers Nvidia Corp., Broadcom Inc., and Micron Technology Inc.
Strong Demand Signals Support Continued Spending
Current market indicators suggest the heavy AI spending will persist. Late Tuesday, Seagate Technology Holdings PLC reported a strong outlook for high-capacity hard drive demand from data center owners through 2027. The company also noted that multiple cloud customers are discussing demand growth projections extending into 2028.
Seagate's positive forecast propelled its stock upward by as much as 18 percent on Wednesday, with similar gains observed for industry peers including Western Digital Corp. and Sandisk Corp.
Microsoft's Azure Business Under Microscope
For Microsoft specifically, investor attention will concentrate on the performance of its Azure cloud-computing division, which has experienced robust demand from companies developing and operating AI services. During its fiscal first quarter ending in September, Microsoft reported that demand for Azure services "significantly" outpaced available capacity.
Analysts project Azure revenue will increase 38 percent in the second quarter compared to the same period last year, slightly below the 39 percent growth recorded in the previous quarter. Investors will also monitor adoption rates for Microsoft's Copilot-branded products, the company's primary vehicle for selling AI software tools to office workers. Detailed information about these services' contribution to Microsoft's sales growth has remained limited thus far.
Competitive Landscape Adds Pressure
Shareholders are growing increasingly concerned about potential disruptions facing software companies like Microsoft following Anthropic's recent release of its new AI tool, Claude Cowork. The product received glowing reviews earlier this month, introducing additional competitive dynamics into the rapidly evolving AI marketplace.
Cofsky summarized investor expectations regarding AI spending ranges, noting that "The general investor expectation is whenever there's a range it's more toward the high end of the range, at least for 2026. That bodes well for Nvidia, Broadcom, TSMC and the broader infrastructure trade."
The technology sector's substantial AI investments continue to generate both opportunity and uncertainty as companies balance innovation spending with investor expectations for tangible returns.
