Tech Giants' AI Spending Sparks Investor Fears and Divergent Stock Performance

Leading technology corporations Microsoft and Meta are continuing substantial investments in new data centers to power artificial intelligence services, yet their recent financial reports have only partially allayed investor fears of an AI investment bubble.

Meta, the parent company of Facebook, disappointed investors with its plans for continued high expenditures on building new data centers. The company's stock fell more than seven percent in after-hours trading. This comes as Meta's free cash flow plummeted by 91 percent in the second quarter compared to the previous year, dropping to $784 million from over $8.5 billion.

Despite the cash flow crunch, Meta intends to significantly increase its investments in data centers and AI chips. Spending is projected to rise to between $130 billion and $145 billion this year, nearly double the amount spent in 2025. Meta CEO Mark Zuckerberg aims to compete with rivals like OpenAI, Google, and xAI, even at the risk of overbuilding data center capacity. Some experts and investors question the profitability of these investments.

Meta is financing its AI projects through debt and external capital. For instance, Blackrock is acquiring 80 percent of a $14 billion AI infrastructure project in Texas, and Blue Owl is investing in another data center. The company's advertising business, which remains strong, also supports AI spending. Meta's revenue increased by 28 percent year-over-year to $60.8 billion, but its profit decreased by 14 percent to approximately $15.85 billion, partly due to a $2.4 billion provision for legal disputes.

In contrast, Microsoft's quarterly results were better received, driven by a booming cloud business. Its stock rose more than eight percent in after-hours trading, suggesting that investors see a clearer return on investment for Microsoft's AI initiatives.