Microsoft, Meta earnings face a market growing skeptical of AI

While Meta shares are even less expensive than Microsoft’s, Facebook’s parent has a murkier path to convincing investors that its AI investments are being well spent. Photo by Michael Nagle/Bloomberg

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Both companies report earnings after the bell on Wednesday. And while they’re expected to continue to deliver rapid growth, that isn’t what Wall Street will be focused on. Last week, Alphabet Inc. posted better-than-expected results on a host of metrics, but the stock had its worst day in over a year because Google’s parent also showed negative cash flow for the first time as a public company due to its soaring capital expenditures.

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“If Alphabet couldn’t convince investors that its spending is justified, then Microsoft and Meta are probably facing a tougher road to do the same,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder, which oversees about US$11 billion in assets and owns Meta and Microsoft shares. “Both have some work to do to reassure investors.”

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Microsoft rose 0.7 per cent Wednesday but is down 18 per cent this year, putting them among the 20 worst performers in the tech-heavy Nasdaq 100 Index, which is up 8.9 per cent in 2026. Meta dipped 0.1 per cent on Wednesday and is on track for a 10th straight negative session, extending what’s already its longest losing streak on record. Shares have lost 10 per cent this year. Amazon, which reports Thursday, fell 0.4 per cent and has declined less than one per cent for the year.

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Watching Microsoft Cloud

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Microsoft’s capex including capital leases is expected to top US$42 billion in its fiscal fourth quarter, which would bring its fiscal 2026 total to US$146.6 billion. That would be the most in its history and nearly double the US$24.2 billion it spent in the year-ago quarter.

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Given that trend, Microsoft’s spending outlook for fiscal 2027 is likely to be a major focus of the report. Analysts anticipate the figure will be more than US$230 billion, while adjusted free cash flow falls to US$32 billion, down from US$62.3 billion in fiscal 2026.

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As with Alphabet, investors will be looking to the company’s cloud-computing business for signs that the spending is translating into growth. Its Azure unit is expected to post a nearly 40 per cent increase in revenue for the quarter. However, Alphabet’s cloud revenue jumped more than 80 per cent, topping expectations, and that didn’t excite investors.

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“For Microsoft, I think the story is cloudier,” said Paul Meeks, head of technology research at Freedom Capital Markets. “It looks like Google is taking share from everybody.”

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Analysts anticipate Microsoft will post a 15 per cent increase in overall revenue and a 16 per cent rise in net income. Both are projected to climb by double-digit percentages in each of the next three fiscal years.

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Capex aside, that growth is coming relatively cheaply. Microsoft’s stock is priced at less than 20 times earnings estimated over the next 12 months, below its 10-year average of 27 and the Nasdaq 100’s multiple of 21.4.