Meta Slips and Microsoft Soars on AI Earnings

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Luke Vargas (0:33)

Meta slides and Microsoft rallies as investors look for answers on how hyperscalers are turning AI spending into AI revenue. Plus, we'll look at the extreme weather fueling Europe's wildfires and the aging planes being used to fight them.

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The problem is the scale, the number of fires, the intensity of fires, all of that has just exceeded the capacity of firefighting infrastructure.

Luke Vargas (0:55)

And as the US strikes back on Iran, the Pentagon proposes spending big on resupplying Patriot missiles. It's Thursday, July 30th. I'm Luke Vargas for the Wall Street Journal, and here is the AM Edition of What's News, the top headlines and business stories moving your world today.

Investors are picking through earnings from Meta and Microsoft this morning and having their say on very different signals about how the companies plan to start making money from their AI buildouts.

Meta shares are down off hours as its AI spending plans and dwindling free cash flow overshadowed record second quarter revenue. At the same time, Microsoft saw its shares jump after reporting strong cloud growth and big gains in paying AI subscribers. Well, here to recap how sentiment is shifting around those hyperscalers as we await results from two more later today is Equity Markets reporter Joe Stoner. Joe, let's talk about these companies in turn starting with Meta, which is racing to catch up to its rivals in AI and to do that is spending big on everything from snapping up chips to buying data centers to hiring more folks. It seems like a real preoccupation for investors in all of this has been, what is this for exactly? Does the company have a plan to convert these investments into revenue? What are you seeing? Are markets satisfied with the answers they got from Mark Zuckerberg and others?

Joe Stoner (2:22)

I think the feeling is that they are not quite satisfied just yet. A word I heard from an analyst at Quilter this morning was vague. Listening to Mark Zuckerberg on his earnings call, another analyst at XTB flagged to me that in their Reality Labs division, that's where they have wearable AI, they lost $4.4 billion in the last quarter. It's not clear how that's going to turn into a profit.

Luke Vargas (2:45)

Let's actually let listeners hear how Zuckerberg himself described these competing impulses around AI. On one hand, he'd be wanting to monetize investments now, or on the other, sit on these chips, sit on the compute, find a purpose for them down the line. Here he was.

Mark Zuckerberg (2:58)

It's always a portfolio.

You don't want to only do long-term things and not prove the markets out that exist in the near term. But I also think it would be foolish to basically just sell all of the compute and take a short-term profit.

Luke Vargas (3:15)

Joe, Meta stock soared almost 9 percent a month ago on the reports that it might get into the business of selling off its excess AI computing power. Yet, is the sense now that that's just not lucrative enough of a return on all this investment?

Mark Zuckerberg (3:29)

Yes.

Joe Stoner (3:29)

There was a bit of amusement among analysts when those reports came out. Because on the one hand, Meta isn't a chip reseller. It shouldn't be doing that as its main form of business. So as it thinks through what it's going to do and whether it's going to sell this computation, there's a bit of encouragement in the Deutsche Bank analysts have said that Meta is lagging behind its competitors. So if it thinks that it can make more money in the long term by keeping its computation in-house, that's a good sign. On the other hand, as you say, the stock market loved selling chips in the short term.

Luke Vargas (4:00)

A sugar rush of it all, right? It was getting some profits.

Joe Stoner (4:02)

Absolutely. Now Meta is on its longest losing streak ever as a stock. So it won't be the, as you say, sugar rush that investors were hoping for.

Luke Vargas (4:10)

Let's switch to Microsoft. It obviously helps that one of its core businesses is doing very well. That's Azure. It's cloud business. Revenue, it said, had surpassed $100 billion in that division for fiscal year 2026 That's on very strong 40 plus percent quarterly growth. But crucially, on the AI front, we got signs that it is succeeding in converting its massive user base into paying AI customers saying co-pilot AI users who were paying for the service jumped by 10 million over the last quarter thanks in part to what Chairman and CEO Satya Nadella said were some big new deals. Let's hear from him.