Investors punish Big Tech AI spending that delivers slower growth

By Aditya Soni and Deborah Mary Sophia

Jan 29 (Reuters) – Investors responded to Big Tech earnings this week with a stark warning: they will forgive record spending that brings solid growth, but punish companies if not, showing how much the stakes have changed since ChatGPT’s launch more than three years ago.

Revenue at Facebook owner Meta Platforms surged 24% in the December quarter, benefiting from online ad targeting bolstered by artificial intelligence.

AI also powered a first-quarter revenue forecast that trounced estimates, showing that Meta’s growing sales could fund data-center spending expected to surge as much as 87% this year to $135 billion.

“Meta’s headline numbers are a really interesting reflection of the market’s attitude toward spending in AI space,” said John Belton, portfolio manager at Gabelli Funds.

“All else equal, the market would typically be concerned, but they have a big revenue guide for the first quarter.”

Microsoft reported growth in its Azure cloud-computing business that was only slightly above expectations, also far lagging record quarterly spending.

The disclosure that prized holding OpenAI accounts for 45% of the backlog was worrying, as some $280 billion may be at risk as the unprofitable startup loses momentum in the AI race.

“Microsoft’s deep ties to OpenAI underpin its leadership in enterprise AI, but they also introduce concentration risk,” said Zavier Wong, market analyst at eToro.

The ChatGPT creator had issued an internal “code-red” in December after Google’s Gemini 3 launched to positive reviews and is playing catch-up in AI coding to Anthropic’s Claude Code, which has hit an annualized run rate of more than $1 billion.

Microsoft’s shares fell 6.5% in after-hours trading on Wednesday, while Meta’s spiked 10%.

After riding its first-mover advantage with OpenAI to secure the crown of the world’s most valuable firm in 2024, Microsoft is now under growing investor pressure to justify its soaring capital outlay.

It predicted Azure growth to stay stable in the period from January to March, after slowing in the last three months of 2025, which it partially blamed on AI chip capacity constraints.

“If I had taken the graphics processing units that just came online in the first quarter and second quarter, and allocated them all to Azure, the KPI (growth) would have been over 40%,” Microsoft finance chief Amy Hood said on a post-earnings call.

She added that the use of chips for internal development efforts had limited the growth.  

META BETS ON AI’S COMPOUNDING EFFECT  

For Meta, the quarter showed benefits from an aggressive push by the late entrant to the AI race that included a talent war and pledge to invest hundreds of billions in massive new datacenters to pursue “superintelligence”.

Its revenue rose 24% in the fourth quarter and Meta forecast growth to accelerate as much as 33% in the current quarter.

But it is racking up bills at large cloud providers, such as Alphabet’s Google, which bodes well for the search giant’s results next week.

Using AI “will both improve the quality of the organic experience and of advertising,” said Chief Executive Mark Zuckerberg.

Zuckerberg has promised that superintelligence, a theoretical milestone reached when machines outthink humans, will help it offer deeply personalized artificial intelligence to a large social media user base.

“I think that will have a compounding effect,” he added, as Meta predicted a jump of 43% in total expenses this year to $169 billion.

TESLA SET TO DOUBLE OUTLAY THIS YEAR

Growing spending was also the theme at Elon Musk’s Tesla, which will double outlay this year to more than $20 billion as it pivots to AI, humanoid robots and personal vehicles that can drive themselves.

After Tesla flagged the planned record spending, its shares pared some gains following a rise of 3.5% following quarterly profit and revenue that were above expectations.

Analysts said the results showed the mismatch between corporate AI goals and investors’ demand for payoffs.

“The market appears to be questioning whether these massive capital expenditure hikes will generate sufficient returns,” said Jesse Cohen, senior analyst at Investing.com.

“This reflects a growing divide between tech companies’ AI ambitions and Wall Street’s patience for open-ended investment cycles.”

(Reporting by Aditya Soni, Deborah Sophia and Jaspreet Singh in Bengaluru; Editing by Clarence Fernandez)