Investors Are Looking for Signs That AI Spending Is Paying Off

Key Takeaways

• Reactions to earnings from Meta, Amazon, Microsoft, and Apple in recent days suggested it may be getting more difficult for big tech companies to impress investors eager to see clear signs that spending on artificial intelligence is paying off.

• Meta shares gained after the social media giant highlighted how early gains from AI to optimize user engagement benefit its ad business, along with its plans to boost investments in the tech.

• Microsoft's cloud-growth miss sent shares lower, with investors seemingly unimpressed by the company's potential for future AI gains.

• Amazon shares tumbled on its weak sales outlook, while the e-commerce giant, like its cloud provider peer, Microsoft, outlined its position to benefit in the AI era.
  

• Reception to Apple's earnings beat was lukewarm amid anticipation for the iPhone 16 and AI release expected in the fall.

Artificial intelligence (AI) was a key focus of earnings reports from big tech companies over the past week, with reactions to results from Meta Platforms (META), Amazon (AMZN), Microsoft (MSFT), and Apple (AAPL) suggesting it might be getting harder for big tech to wow investors with their AI plans.

Many of the companies have ramped up spending on AI, raising concerns about AI's costs, and stock moves after the latest earnings this week indicate some have had greater success than others in convincing investors.

Meta's Early AI Gains Ease Worries About Spending

Meta shares gained after the company announced better-than-expected results and CEO Mark Zuckerberg highlighted its advances in AI.

This week, the company lifted the lower end of its capital expenditures (CapEx) guidance for the full year to $37 billion from $35 billion, while maintaining the high end at $40 billion. Meta also said it plans to increase CapEX further in 2025. Last quarter, Meta shares had tumbled after the company reported earnings amid worries about overspending to invest in AI.

However, investors seemed less concerned with Meta's multi-billion dollar AI spending as Zuckerberg reported early gains from the tech. The company said it is leveraging AI to improve recommendations for social content and ads on its platforms to optimize user engagement and make ads "more effective,” benefitting Meta's ad business.

Microsoft, Amazon Shares Fall Amid Growth Concerns

By contrast, weaker-than-expected growth in Microsoft's cloud segment overshadowed its earnings beat, sending shares lower.

On the company's earnings call, CFO Amy Hood said AI-related capacity falling short of demand held back Microsoft's cloud gains. CEO Satya Nadella said that the company is investing in AI based on demand signals, and expects AI spending will help Microsoft raise capacity to meet demand in the second half of fiscal 2025.

Amazon shares also fell after the e-commerce giant missed revenue estimates and issued weak guidance for the coming quarter. Company executives highlighted Amazon's position to gain from Amazon Web Services (AWS) customers preparing their cloud infrastructure for generative AI (GenAI) opportunities, but it wasn't enough to boost enthusiasm for the stock.

Apple Investors Waiting on iPhone 16 and Apple Intelligence Launches

Apple shares made slight gains Friday, a day after its earnings beat estimates as investors wait for the expected release of the iPhone 16 and Apple Intelligence in the fall.

CEO Tim Cook said that Apple's AI features, which were unveiled in June, will come to users in staggered launches, rather than in one software update, with ChatGPT integration coming to iPhones by the end of the calendar year.

Apple's introduction of AI features has raised expectations they could spur an accelerated upgrade cycle as the company's record-high install base could upgrade to newer devices to access Apple Intelligence.

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