Why investors are suddenly nervous about Microsoft and newly confident in Meta

Microsoft stock just suffered its biggest single day drop since 2020. Meanwhile, Meta stock popped by 10%. Both tech giants are spending billions on AI talent and infrastructure, but investors clearly feel skittish about Microsoft at the start of 2026 and bullish on Meta’s tale of near-term upside.

For a company that famously whiffed on the metaverse, Meta is looking more reasonable these days. The company is still poised to invest eye-popping sums into artificial intelligence in the coming years, but so are all of its peers, Microsoft included. In an era of AI hype and sky-high expectations, Meta is following the crowd—not leading it—for better or worse.

In 2026, the company is building a grounded narrative around its strong revenue 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 back up the story. Meta reported $59.89 billion in revenue in the last quarter, beating Wall Street’s estimate by over $1 billion. The company said more people are using its wide family of social apps, with 7% daily active user growth year over year across its products.

Mark Zuckerberg took some time in Wednesday’s earnings call to declare that he can’t imagine a world “where most glasses that people wear aren’t AI glasses” within the next few years, but at least he didn’t lead with the company’s latest cash-burning consumer hardware bet.

Meta’s AI spending green light

The Menlo Park tech giant’s investment in AI is only growing. In 2026, Meta expects to splash out between $115 billion and $135 billion in capital expenditures, way up from the $72.22 billion it spent across 2025. Meta says the increase will largely be driven by upped investment into Meta Superintelligence Labs, its AI division. “We’re in this interesting period where we’ve been rebuilding our AI effort, and we’re six months into that, and I’m happy with how it’s going,” Zuckerberg said.

Meta is bullish on its near-future revenue, too. The company is expecting to bring in between $53.5 and $56.5 billion next quarter. On its earnings call, executives highlighted how weaving AI into its existing products is explicitly boosting its ad business. 

“There are several major business opportunities that we’re focused on . . . one is just going to be improving the core products and accelerating the current business,” Zuckerberg said, noting that Meta’s products are already benefitting from AI integration into their recommendation engines. The company says that advertisers are responding to ad performance improvements already, and those successes are driving conversion growth—and revenue.

Investors took note, the stock popped and the company’s narrative about where all that AI spend will go seems to make sense to the market, at least for now.

Microsoft’s story is complicated

Investors seem to appreciate that Meta is eating its vegetables and bolstering its ad business these days, but Microsoft is a different story.

Microsoft, once the boring PC company, is on the cutting edge of the AI boom. The company handily beat expectations in its own earnings report this week, notching $81.3 billion in quarterly revenue – a 16% year over year increase. Its net income bested expectations too. So what went wrong?

If investors are worried about being over indexed on Microsoft, Microsoft may be worried about being in too deep with OpenAI. The tech stalwart’s AI bets are complex due to being bound up with OpenAI, which the larger company has invested more than $11 billion into to date. Microsoft’s latest earnings were buoyed by OpenAI’s transformation into a more traditional for-profit company, which Microsoft will own a 27% stake in, valued at $135 billion. That investment delivered Microsoft $7.6 billion in net income in the last quarter.

Microsoft increasingly competes with its longtime partner, but remains worryingly dependent on it at the same time. The company is holding onto an astronomical $625 billion backlog in pent up demand for its cloud computing business, but just disclosed that OpenAI accounts for 45% of those outstanding cloud contracts. If OpenAI stumbles, Microsoft does too. 

Microsoft may be powering the AI revolution, but, until solved, its capacity woes put an awkward cap on the revenue that business can bring in. To fix the problem, the company is feeding its voracious appetite for cloud computing capacity – but all of that spending may start to rattle investors. Microsoft shelled out $37.5 billion in capital expenditures in the last quarter, a figure that includes AI infrastructure investment like data centers. Meanwhile, its Azure cloud business grew 39% in the quarter, beating expectations but staying flat from last quarter’s growth. 

In the company’s earnings report, CEO Satya Nadella argued that Microsoft is well-positioned in the “beginning phases” of AI adoption. “We are pushing the frontier across our entire AI stack to drive new value for our customers and partners,” Nadella said.

AI’s major players are set to sink more cash than ever into the technology this year. But after a few years of AI-driven sugar highs, the industry may finally be tempered by investors eager for an endgame.

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