Shares of Microsoft just suffered their biggest single-day drop since 2020. Meanwhile, shares of Meta fell 10%. Both tech giants are spending billions on AI talent and infrastructure, but investors are clearly skittish about Microsoft in early 2026 and optimistic about Meta’s story of near-term upside.
For a company that was famous with the metaverse, Meta is looking more reasonable these days. The company is still poised to invest huge sums in artificial intelligence in the coming years, but so are all its peers, including Microsoft. In an age of AI hype and sky-high expectations, Meta follows the crowd – not leads it – for better or for worse.
In 2026, the company will build a well-founded story around its strong sales growth. Meta is an advertising company through and through, and in 2026 it’s emphasizing that core competency while pointing to strong revenue growth to support the story. Meta reported revenue of $59.89 billion last quarter, beating Wall Street estimates by more than $1 billion. The company said more and more people are using its broad family of social apps, with daily active user growth of 7% year over year for its products.
Meta CEO Mark Zuckerberg took some time in Wednesday’s earnings call to declare that he can’t imagine a world in the next few years “where most of the glasses that people wear are not AI glasses.” But at least he wasn’t in charge of the company’s latest money-grubbing consumer hardware bet.
Meta’s AI gives the green light
The Menlo Park tech giant’s investments in AI are only growing. In 2026, Meta expects to spend between $115 billion and $135 billion on capital expenditures, far more than the $72.22 billion it spent in 2025. Meta says the increase will largely be driven by increased investments in Meta Superintelligence Labs, its AI division. “We’re in an interesting period of rebuilding our AI efforts, and we’re six months into it now, and I’m happy with how things are going,” Zuckerberg said.
Meta is also optimistic about earnings in the near future. The company expects to bring in between $53.5 billion and $56.5 billion next quarter. During the earnings call, executives highlighted how weaving AI into existing products explicitly boosts advertising business.
“There are several big business opportunities we’re focused on… one of which is improving core products and accelerating current operations,” Zuckerberg said, noting that Meta’s products already benefit from AI integration into their recommendation engines. The company says advertisers are already responding to improvements in ad performance, and those successes are driving conversion growth and revenue.
Investors took notice, shares skyrocketed, and the company’s story about where all that AI spending will go seems to make sense for the market, at least for now.
Microsoft’s story is complicated
Investors seem to realize that Meta is eating its vegetables and strengthening its advertising business these days, but Microsoft is a different story.
Microsoft, once the boring PC company, is at the forefront of the AI boom. The company easily beat expectations in its own earnings report this week, with quarterly revenue of $81.3 billion – up 16% year over year. The net result also exceeded expectations. So what went wrong?
If investors are worried about being over-indexed on Microsoft, Microsoft may be worried about being too deeply involved in OpenAI. The tech’s AI bets are complex because they are tied to OpenAI, in which the larger company has invested more than 11 billion dollars in so far. Microsoft’s latest earnings were boosted by OpenAI’s transformation into a more traditional for-profit company, in which Microsoft will own a 27% stake, valued at $135 billion. That investment earned Microsoft a net profit of $7.6 billion last quarter.
Microsoft is increasingly competing with its old partner, but at the same time remains worryingly dependent on it. The company is holding on to an astronomical backlog of $625 billion in pent-up demand for its cloud computing business, but just announced that OpenAI is responsible for 45% of those outstanding cloud contracts. If OpenAI stumbles, so will Microsoft.
Microsoft may be the driving force behind the AI revolution, but until the problem is solved, it will pose a burdensome limitation on the revenue companies can bring in. To solve the problem, the company is feeding its voracious appetite for cloud computing capacity, but all that spending could start to confuse investors. Microsoft spent $37.5 billion on capital expenditures last quarter, a figure that includes investments in AI infrastructure such as data centers. Meanwhile, Azure cloud business grew 39% this quarter, which beat expectations but remained flat compared to last quarter’s growth.
In the company’s earnings report, CEO Satya Nadella argued that Microsoft is well positioned in the “early stages” of AI adoption. “We are pushing the envelope across our entire AI stack to drive new value for our customers and partners,” he said.
The major players in AI will pour more money into the technology than ever this year. But after a few years of AI-driven sugar highs, the sector may finally be dampened by investors eager for an endgame.
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