Meta and Microsoft report ballooning AI expenses
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Microsoft and Meta reported ballooning AI costs on Wednesday, but Microsoft still managed to increase its profits, while Meta posted a sharp earnings decline.
- Meta shares slumped 6.2% in after-hours trading, while Microsoft rose 2.4%.
Why it matters: AI hyperscalers are rushing to bolster computing power to accelerate their tech ambitions, but it's getting extremely expensive and causing some investors to get nervous.
Zoom in: Meta — which owns Facebook, Instagram and WhatsApp — recorded a 55% increase in expenses, to $42 billion, while revenue grew at a slower pace of 28%.
- Consequently, the company's net income fell 14%, to $15.8 billion.
- That fell short of S&P Capital IQ projections of $18.8 billion.
Microsoft — whose $100 billion Azure cloud business is at the center of the AI bonanza — said its capital expenditures soared 70%, to $41 billion, "to support customer demand for our cloud and AI offerings."
- But the company still recorded a 31% increase in net income, to $35.8 billion, topping S&P Capital IQ expectations of $31.5 billion.
Meta said its 2026 capital expenditures are now expected to total $130 billion to $145 billion, raising the low end by $5 billion, but maintaining the projected upper end.
- Bank of America analyst Justin Post had expected the company might lower the upper end of its capex outlook by $1 billion to $2 billion after announcing 8,000 layoffs.
- Meta now has 75,472 employees as of June 30, down 1% from a year earlier, but that figure does not yet reflect the cuts.
The intrigue: Microsoft acknowledged in an earnings presentation that about two-thirds of its capex is for "short-lived assets, primarily CPUs and GPUs," which will eventually need to be replaced as the company modernizes its systems.
