Stocks are in the midst of their best two years since the dot-com boom

Good results? Doesn’t matter. Good guidance? Doesn’t matter. Spending a ton to augment your business with AI? You’d better believe it doesn’t matter.

This earnings season, investors have decided that AI is enough of a long-term threat to the earnings power of software companies that the past three months or the next 12 are, at best, the calm before the storm. And heaven help management teams that didn’t offer strong results or a positive outlook.

The slow burn in software stocks has erupted into an all-out bonfire on Thursday, fueled by traders finding any excuse to sell Microsoft and ServiceNow after both reported robust quarterly results. The follow-through is weighing on the likes of Atlassian, Workday, Salesforce, Datadog, and Intuit. Put it all together and iShares Expanded Tech Software ETF is poised for its worst day since the Friday following the Rose Garden reciprocal tariff announcements in April 2025.

Here’s how an assortment of software companies have done on the session after reporting earnings:

Are there babies being thrown out with the bathwater here? Maybe. Probably, even!

But it likely won’t inspire too much confidence to learn that the last time the S&P 500 Software & Services industry group was down at least 20% over a 63-session stretch while the SPDR S&P 500 ETF was positive happened to be June 12, 2000.

Shares of air taxi maker Joby Aviation are down more than 14% in premarket trading after the company announced a $1 billion capital raise after the bell Wednesday.

Joby, which in December said it would invest in equipment, facilities, and employees to double its aircraft production output by 2027, is offering convertible senior notes due 2032.

According to reporting by Bloomberg, the notes are being offered with an up to 30% conversion premium. Bloomberg reports that the company is pricing its share offering between $11.35 and $11.75, representing up to a 15% discount on the stock as of Wednesday’s close.

Joby ended its third quarter with $978.1 million in cash and cash equivalents, down slightly from its second quarter. Its shares have risen 62% over the past 12 months, compared to a more than 14% loss for its rival Archer Aviation in the same stretch.

Two hyperscalers. Two top- and bottom-line beats. Two different reactions.

When both companies issue capex guidance that’s higher than expected and one goes up and the other goes down, it’s difficult for me to argue that the capex outlook is the key driver of either market reaction.

So here’s a smattering of potential reasons for the divergent paths of Meta and Microsoft since releasing quarterly earnings reports after the close on Wednesday, which has seen the former rally while the latter gets crushed:

• Microsoft cloud growth is slowing; Meta’s top line is poised to accelerate.

  • Azure revenues were up 38% year on year in constant currency terms, a modest sequential slowdown since Q2 2025, and management’s guidance for growth of 37% to 38% in the current quarter implies this trend is likely to continue.

  • The midpoint of Meta’s guidance for revenues between $53.5 billion and $56.5 billion this quarter would mark an acceleration to sales growth of 30% year on year. Since the AI boom started, its high-water mark for sales growth has been 27%.

• Customer quality and concentration matters:

  • While Microsoft enjoyed solid ex-OpenAI growth in its remaining performance obligations, that one customer is still responsible for 45% of commercial RPO. Look at Oracle to get a glimpse of what investors think about firms whose AI build-outs use OpenAI demand as scaffolding.

  • Meta’s lack of a cloud business has been an oft-cited negative about the aggressiveness of its build-out. The company arguably has to work harder than other hyperscalers to turn that spending into sales growth. And... that’s happening.

• Initial conditions matter:

  • There was probably a little more embedded pessimism on Meta than Microsoft heading into these reports. As of Wednesday’s close, it was the only member of the Magnificent 7 to trade lower over the past 12 months.

Cheers to Duncan Weldon, VKMacro, and George Pearkes, whose back-and-forth on Bluesky inspired this post.

Microsoft’s chief financial officer, Amy Hood, just offered some intel that severely undercuts Michael Burry’s argument against AI stocks, albeit with one big caveat.

If you’ll recall, the hedge fund manager turned Substacker of “The Big Short” fame said that tech companies were understating depreciation charges — that is, how fast GPUs lose their value over time, in a bid to artificially juice profits.

During Microsoft’s conference call on Wednesday, the CFO was asked how the company will be able to capture enough revenue over the six-year useful life of the hardware to justify the outlays. Her response:

“The way to think about that is the majority of the capital that we’re spending today and a lot of the GPUs that we’re buying are already contracted for most of their useful life,” she said. “And so a way to think about that is much of that risk that I think you’re pointing to isn’t there because they’re already sold for the entirety of their useful life.”

The implication here is that not only will these chips make money for as long as tech companies expect they will, but that their useful economic life might actually be longer than that, not shorter.

This tidbit is obviously positive for the hyperscalers, which are spending hundreds of billions on these GPUs. But it’s probably even more of a relief to neoclouds that are even more dependent on these chips being able to generate cash. That’s (mostly) all there is to their businesses, unlike megacap tech giants.

It also corroborates commentary from one such neocloud, CoreWeave, on how well these processors retain value.

“For example, in Q3, we saw our first 10,000-plus H100 contract approaching expiration,” CoreWeave CEO Michael Intrator said after the firm’s most recent earnings report. “Two quarters in advance, the customer proactively recontracted for the infrastructure at a price within 5% of the original agreement.”

And per Silicon Data, H100 rental rates have firmed significantly since the end of November.

However, I’d be remiss not to point out a potential fly in the ointment here: one reason that Microsoft’s GPUs are contracted for most of their useful life is thanks to demand from OpenAI, which accounts for 45% of its commercial remaining performance obligations.

And, if Oracle’s shown us anything, it’s that customer concentration and quality matters.