Microsoft's Cloud Outlook Knocks Shares, Meta Rises on AI Payoff Signs

Pedestrians walk past a Microsoft Experience Center, following a global IT outage, in New York City, US July 19, 2024. REUTERS/Kent J. Edwards/File Photo
Pedestrians walk past a Microsoft Experience Center, following a global IT outage, in New York City, US July 19, 2024. REUTERS/Kent J. Edwards/File Photo
TT
20

Microsoft's Cloud Outlook Knocks Shares, Meta Rises on AI Payoff Signs

Pedestrians walk past a Microsoft Experience Center, following a global IT outage, in New York City, US July 19, 2024. REUTERS/Kent J. Edwards/File Photo
Pedestrians walk past a Microsoft Experience Center, following a global IT outage, in New York City, US July 19, 2024. REUTERS/Kent J. Edwards/File Photo

Investors punished Microsoft with a 6% share drop on Thursday as hefty AI bets failed to drive a big increase in its cloud revenue, while Meta rose 4% after CEO Mark Zuckerberg assured Wall Street about growth with promises of a "really big year".

The chief executives of both the companies defended their heavy investments on artificial intelligence on Wednesday, days after Chinese upstart DeepSeek unveiled a breakthrough in cheap AI that shook the technology industry.

But while Meta has consistently showed strong ad revenues - a move that "easily justifies" its investments according to Evercore analyst Mark Mahaney - Microsoft's key cloud business Azure has been slowing down, Reuters reported.

The Windows maker missed market estimates for quarterly revenue growth at Azure and gave a third-quarter forecast for the business that was below expectations, even after it promised a rebound for the unit in the second half of its fiscal year.

"The second-half re-acceleration story for Azure is not playing out," Barclays analyst Raimo Lenschow said.

"The company overly focused on AI workloads at the expense of core Azure. It will take time to fix this, which means the Azure growth acceleration the market had been hoping for has to wait for a little longer."

For Facebook-parent Meta, a better-than-expected 21% jump in revenue helped ease investor fears around Zuckerberg's plans to spend as much as $65 billion this year on AI, even as its first-quarter forecast was muted.

"Nobody is more bulled up on AI than Meta. And Meta might have more benefits to show from AI than anyone," Rosenblatt analyst Barton Crockett wrote.

At least 15 brokerages raised their price targets on Meta, which has a 12-month forward price-to-earnings ratio of about 26.22. The stock jumped 65% last year, the biggest gain among Big Tech peers. The company looked set to add more than $80 billion to its market value on Thursday.

"Meta's ability to use AI to sustainably drive both engagement and pricing growth is a rarity in its (and the industry's) history," MoffettNathanson analysts said.

Microsoft was on track to erase about $182 billion off its market cap. About four brokerages trimmed their price targets on the stock, which has lagged its peers with just a 12% gain last year.

Microsoft "did not recommit to (its Azure second-half outlook) the same way that it did 90 days ago. The Azure-acceleration story has been hit by shrapnel and is losing altitude," J.P. Morgan analyst Mark Murphy said.



Qatar Signs Deal with Scale AI to Use AI to Boost Government Services

The offices of artificial intelligence tech company Scale AI in Montreal, Quebec, Canada April 7, 2024. REUTERS/Evan Buhler/File Photo
The offices of artificial intelligence tech company Scale AI in Montreal, Quebec, Canada April 7, 2024. REUTERS/Evan Buhler/File Photo
TT
20

Qatar Signs Deal with Scale AI to Use AI to Boost Government Services

The offices of artificial intelligence tech company Scale AI in Montreal, Quebec, Canada April 7, 2024. REUTERS/Evan Buhler/File Photo
The offices of artificial intelligence tech company Scale AI in Montreal, Quebec, Canada April 7, 2024. REUTERS/Evan Buhler/File Photo

Qatar's government has signed a five-year deal with AI data company Scale AI to deploy AI-powered tools and training in a push to improve government services in the Gulf Arab state, a senior Scale AI executive told Reuters on Sunday.

"(This deal) can be a blueprint for other governments around the world, and it allows us to really commit in a way that I think could drive impact even faster," said Trevor Thompson, global head of growth at the San Francisco, California-based company.

The deal will allow Qatar's government to adopt tools such as predictive analytics, automation and advanced data analysis in an effort to streamline operations, said a statement by Qatar's communications and information technology ministry.

Scale AI will develop more than 50 possible uses of artificial intelligence (AI) for Qatar's government over the next five years, the statement added.