Microsoft and Meta Invest Billions in AI Technology as Tech Stocks Surge

The increasing demand for artificial intelligence (AI) has led Microsoft to report unexpectedly strong quarterly results. The company's revenue surged by 13% to $70.1 billion, while its net profit climbed by 19% to $25.8 billion, adjusted for currency fluctuations. Microsoft CEO noted the essential role of cloud and AI technologies in boosting productivity, reducing costs, and accelerating growth.

Microsoft's cloud division, Azure, which hosts various AI programs, experienced a remarkable 33% growth. Following the announcement, Microsoft's stock saw a 6% increase in after-hours trading on Wall Street. Analysts from eMarketer praised the company's ability to convert AI infrastructure into profitable growth.

However, concerns about potential overcapacity and ineffective investments in new data centers have surfaced in recent months. Analysts from Cowen speculated that Microsoft may have abandoned two server farm projects due to oversupply. A senior Microsoft executive affirmed the company's commitment to its expansion plans, although some timelines might be extended or projects paused temporarily. Similarly, Amazon characterized reports of capacity management in its AI ventures as standard practice, as Amazon Web Services (AWS) remains the largest cloud provider.

Meta, the parent company of Facebook and Instagram, is also feeling the impact of AI. Users are increasingly engaging with AI-driven content, which enhances the personalization of advertisements and suggests posts aligned with individual interests. Meta's CEO highlighted that the time users spend on Facebook has risen by 7% over the past six months due to improved recommendation systems, while Instagram saw a 6% increase.

In the last quarter, Meta's revenue climbed by 16% year-over-year to $42.3 billion, surpassing analyst expectations of $41.4 billion. The company's net profit jumped 35% to approximately $16.6 billion, leading to a 5% increase in stock value during after-hours trading.

Looking ahead, Meta forecasts revenue between $42.5 billion and $45.5 billion for the current quarter, with analysts projecting around $44 billion. Despite facing a downturn in advertising revenue from Chinese online retailers affected by U.S. tariffs, Meta is investing heavily in AI computing power, planning to spend between $64 billion and $72 billion on data center expansions this year, up from an earlier estimate of $60 billion to $65 billion.

Microsoft and Google have also announced plans to collectively invest $155 billion in new data centers this year, which represents nearly half of the total amount major tech firms intend to allocate for AI infrastructure expansion in 2025. Amazon's CEO emphasized the necessity of rapid expansion to maintain competitiveness. AI expenditures are becoming a pivotal factor for the largest economy, with JPMorgan estimating they could enhance growth by up to 0.2 percentage points this year and next.

Nonetheless, the ongoing trade conflict initiated by former President Trump's tariffs poses a potential threat to these ambitious plans. A significant portion of the electrical infrastructure and equipment for data centers is manufactured outside the United States, leading to concerns about supply shortages amid high global demand. There is speculation that Chinese suppliers may redirect their exports to other countries, further complicating the landscape for tech giants.