Despite the recent plunge in U.S. tech stocks that wiped nearly $1 trillion from market value due to concerns about high spending on artificial intelligence (AI), Meta Platforms Inc. (NASDAQ: META), Facebook's parent company, hit a new record high, suggesting that investors still have faith in Meta's AI strategy.* Conversely, Microsoft Corp. (NASDAQ: MSFT) shares continue to trade below their absolute high, due to concerns about their high investment in AI, including their stake in OpenAI, DeepSeek's main competitor.*
Comparison of Meta and Microsoft strategies
Both companies are due to report their quarterly results on Wednesday, with the current focus of these giants being on the implications of AI for their future growth. According to Gene Munster of Deepwater Asset Management, Meta has a better long-term position than Microsoft due to its open-source Llama model, which is comparable to DeepSeek's. Munster notes that Meta could become the "DeepSeek of the West" because American companies are unlikely to want to build development based on the model from China.
In terms of spending, Meta plans to invest up to $65 billion in AI projects in 2025, which is more than expected. On the contrary, Microsoft plans to spend an equal $80 billion this fiscal year.
Market performance
Meta reported in the last quarter that AI is having a significantly positive impact on almost all aspects of their work, suggesting that the increase in spending is a sign of confidence in ROI. On the other hand, Microsoft's AI paths are more complicated, and at the same time, the impact on the market price is more delayed. Looking at the performance of stock prices, Meta is winning by a landslide. So far this month, the price has risen 16%, which is on track for their biggest one-month gain since February. It is also crucial to add that last year's overall growth represented an increase in value of more than 65%. Microsoft is up 6% this year, gaining just 12% for 2024.*
Picture 1 Meta Platforms Inc.'s share price performance over the past five years*
Picture 2 Microsoft Corp. stock price performance over the past five years*
Assessment and risks
A follow-up factor that confirms Meta's attractiveness is the fact that it is currently trading at about 25 times the estimated future profits, which is only slightly above their 10-year average. This figure also shows that among the largest US technology companies, Meta shares are trading at a relatively favorable price. By comparison, Microsoft is trading at more than 31 times its expected earnings, which is above its long-term average.
Conclusion
Investors should pay close attention to the quarterly results of both of these companies in the coming days, as they will provide additional information about the true effectiveness of their AI investments. While Meta is gaining an advantage with investors thanks to its aggressive and clear AI strategy, Microsoft faces challenges in proving the value of its investments. In conclusion, it is only necessary to add that the growing competition and innovation in the AI space pose certain risks for both companies, as well as opportunities for future growth. [1]
* Past performance is not a guarantee of future results
[1] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which is subject to change. Such statements are not a guarantee of future performance. They involve risks and other uncertainties that are difficult to predict. Results could differ materially from those expressed or implied in any forward-looking statements.
Resources:
https://finance.yahoo.com/news/meta-microsoft-show-ai-spending-121441823.html
