Meta and Microsoft Show AI Spending Can Be a Double-Edged Sword

(Bloomberg) — On a day US tech stocks lost nearly $1 trillion on concerns about artificial intelligence spending, Meta Platforms Inc. hit a record high — signaling that investors were keeping the religion when it got here to its own AI plans.

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The Facebook parent saw its stock undeterred by the perceived challenge posed by Chinese startup DeepSeek — whose AI model is open sourced, like Meta’s Llama. Meta’s recent strength stands in contrast to Microsoft Corp., which has seen its shares falter on concerns about heavy AI spending — including its stake in OpenAI, a key competitor to DeepSeek.

Each corporations report on Wednesday, and the return they’re getting from AI might be a key theme.

“Meta is in a greater long-term position with AI than Microsoft, and the success of DeepSeek validates its open-source strategy,” said Gene Munster, co-founder and managing partner at Deepwater Asset Management. Llama could change into “the DeepSeek of the West” as U.S. corporations are unlikely to construct off a China-based model, he added.

In line with Munster, investors have welcomed Meta’s spend due to the potential for AI to enhance its engagement and promoting. Compared “Microsoft’s AI road has change into less clear over the past several months, and the impact might be rather a lot less immediate,” he said.

The highest performer among the many Magnificent Seven this month, Meta shares are up 16% in January, on target for his or her biggest one-month gain since February and constructing on last yr’s rally of greater than 65%. Microsoft has risen 6% this yr, and only rose 12% over 2024. Shares of Meta rose 3% on Tuesday, their seventh straight positive session, while Microsoft rose 2.8%.

Each have stressed a commitment to spending. Meta on Friday said it plans to speculate as much as $65 billion on AI projects in 2025, greater than expected. Microsoft plans to spend $80 billion this fiscal yr.

Microsoft’s past two reports disillusioned, and its spending has come under scrutiny, especially amid signs its AI services are only gaining limited traction. In contrast, Meta last quarter said AI was having “a positive impact on nearly all points of our work,” contributing to the view its spending boost is an indication of religion in its own strategy.

“The market appears to be embracing this since it thinks Meta is spending more since it sees an excellent return,” said David Katz, chief investment officer at Matrix Asset Advisors. “The offset to this spending is the impact to profitability, and that’s not as clear without delay.” Still, “the market is giving Meta the good thing about the doubt,” he added.

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