By Dan Gallagher

Meta Platforms and Microsoft are both showing that obscene spending on new businesses can work -- as long as the older ones are humming.

That was hardly a given heading into their latest quarterly reports on Wednesday. Meta's stock price in particular had slumped nearly 6% over the past month, following a flurry of news reports about Chief Executive Mark Zuckerberg lavishing nine-figure paydays on artificial-intelligence researchers. And both Meta and Microsoft were already on track to spend more than 30% of this year's revenue on capital expenditures, compared with about 15% to 20% historically.

Those outlays were already beginning to look like mere table stakes after Google parent Alphabet used its report last week to bump up its own capex spending plans for this year to $85 billion. That is more than the annual revenue generated by 92% of companies in the S&P 500.

Investors have begun to worry about the ultimate utility of such blowout spending. Especially with growing global economic uncertainty hanging over Microsoft's enterprise software and Meta's social-network advertising. But that didn't trip up either one in the June-ended quarter. Meta's revenue jumped 22% year over year to $47.5 billion and beat Wall Street's targets by the widest margin in more than four years, according to data from FactSet. Meta rallied 12% in early trading Thursday, while Microsoft gained 5%, putting its market capitalization above $4 trillion for the first time.

Meta's revenue jumped 22% year over year to $47.5 billion and beat Wall Street's targets by the widest margin in more than four years, according to data from FactSet.

Microsoft, meanwhile, got a surprisingly strong boost from its cloud operations as well as elevated PC shipments, driven by the stocking up of inventories ahead of tariffs. The company also finally disclosed the actual size of its Azure public cloud business, reporting the unit's annual revenue has surpassed the $75 billion mark.

Will the good times hold? They better. Both stocks are trading at sharply elevated multiples of forward earnings compared with three years ago, when the launch of ChatGPT sparked an AI gold rush. Most of the actual rewards so far have accrued to Nvidia, whose revenue has jumped 10-fold since ChatGPT's launch, with its market cap crossing the $4 trillion mark earlier this month.

Zuckerberg, for his part, is clear in his ambitions. He touted the importance of the company's efforts to build "superintelligence" in a blog post ahead of Wednesday's earnings. On the company's earnings call, he described the AI efforts as a "massive investment" that will take years to ultimately come to fruition.

"We do take very seriously that this is just a massive amount of capital to convert into many gigawatts of compute, which we think is going to help us produce leading research and quality products and in running the business," Zuckerberg said on the call.

Microsoft, meanwhile, projected record capital expenditures of $30 billion for the current quarter, though said its spending growth for the full fiscal year ending next June will be slower than the recently ended one. And while the scale of Zuckerberg's ambition is clear, less clear is how a consumer-focused social network can generate the same kinds of returns on AI as a company like Microsoft that sells multibillion-dollar software packages to big corporate clients.

Not all of Meta's spending is hitting the company's books yet. Meta maintained the top end of its projected range for total expenses this year. But Chief Financial Officer Susan Li said higher spending on infrastructure and AI talent will put "meaningful upward pressure" on next year's expense growth.

That could bring Meta's total expenses to around $150 billion in 2026 -- nearly triple what the company spent just five years ago. With his controlling share, Zuckerberg has the luxury of fully calling the company's shots. He still can't afford to miss.

Write to Dan Gallagher at dan.gallagher@wsj.com

(END) Dow Jones Newswires

July 31, 2025 10:16 ET (14:16 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.