Microsoft and Meta reported ballooning AI costs today, but Microsoft still increased 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, coming in below 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.

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.

The Federal Reserve left its interest rate target unchanged today amid significant internal dissent from officials who preferred to raise rates, Axios' Neil Irwin writes.

📸 The big picture: The central bank elected not to surprise markets with an interest rate hike, contrary to rampant speculation on Wall Street in recent days. But three members of the policy-setting Federal Open Market Committee did favor raising the cost of borrowing.

• And markets did not appear happy with the decision and subsequent press conference. Stocks steepened an earlier decline as Treasury yields climbed, with the yield on the 30-year bond surging to its highest level since 2007.

💵 Driving the news: The Fed committee left its target range for the federal funds rate between 3.5% and 3.75%, where it has stood since December.

• Cleveland Fed president Beth Hammack, Minneapolis Fed president Neel Kashkari, and Dallas Fed president Lorie Logan preferred a quarter-point rate hike, with the other nine officials, including chairman Kevin Warsh, voting to stand pat.

Between the lines: Speaking to reporters for the second time since becoming Fed chairman, Warsh affirmed the Fed's commitment to its 2% inflation target — despite several years of inflation being well above that.

Go deeper

🧺 Procter & Gamble's organic sales were flat as the maker of Tide, Pampers and Bounty struggled to attract value-oriented shoppers. (CNBC)

🏀 Exchange operator CME Group plans to offer sports futures and option contracts in the latest salvo in the prediction market space. (Bloomberg)

🚙 BMW plans to cut up to 8,000 jobs as the European auto industry deals with trade tensions and an onslaught of Chinese vehicles. (The Guardian)

DoorDash has secured authorization from the FAA to launch its own in-house drone delivery program.

🍕Why it matters: The company has invested in a wide range of alternative forms of delivery, including ground bots and delivery via bicycle.

Driving the news: DoorDash is starting DoorDash Air after becoming the eighth drone operator in the U.S. to obtain Part 135 air carrier certification.

• "We want drone delivery to work for any merchant, anywhere," Harrison Shih, head of DoorDash Air, said in a statement. "We're building the full stack to make that possible from the ground infrastructure to the drone itself, and the handoff systems that make it work together seamlessly."

State of play: DoorDash already has drone delivery partnerships with Alphabet's Wing and Israeli company Flytrex.

• Those deals will remain in place, but the company will now develop its own custom-made drone and manage many of its own air deliveries.

The bottom line: The company says drone deliveries under 5 miles average fewer than 25 minutes.