Why Meta is ripping higher after earnings while Microsoft craters
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.
