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
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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.



OpenAI's Weekly Active Users Surpass 400 Million

OpenAI logo is seen in this illustration taken February 16, 2025. REUTERS/Dado Ruvic/Illustration/File Photo
OpenAI logo is seen in this illustration taken February 16, 2025. REUTERS/Dado Ruvic/Illustration/File Photo
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OpenAI's Weekly Active Users Surpass 400 Million

OpenAI logo is seen in this illustration taken February 16, 2025. REUTERS/Dado Ruvic/Illustration/File Photo
OpenAI logo is seen in this illustration taken February 16, 2025. REUTERS/Dado Ruvic/Illustration/File Photo

ChatGPT developer OpenAI's weekly active users surged past 400 million in February, a company spokesperson told Reuters on Thursday, highlighting rapid growth in the adoption of artificial intelligence tools.

The Microsoft-backed startup had 300 million weekly active users in December. Its paying business users also crossed 2 million in February, more than doubling from its last update in September.

The upbeat numbers come weeks after China's DeepSeek launched an AI model it said could match or even outperform Western rivals at a fraction of the cost, stirring doubts about US dominance in the generative AI space, Reuters reported.

But a surge in demand for DeepSeek since then has caused outages at the small startup.

There have also been questions around how DeepSeek was able to obtain Nvidia's H800 chips, used to train AI models, even though Washington had banned their exports to China.

OpenAI reported a twofold increase in developer traffic for its reasoning models over the last six months and a fivefold surge for its o3 model since its launch in late January.

The news about OpenAI's weekly users was first reported by CNBC earlier in the day.