1 Big Reason Google Surged While Microsoft and Meta Fell After Earnings

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The "Magnificent Seven" all seem to be grouped together at times, but as the artificial intelligence (AI) races heat up, each of these marquee companies is fighting the others for AI supremacy.

That's why investors are so tuned in to the details of each company's earnings results; specifically, whether each company's investments in AI are paying off. That requires looking at two things, obviously: the spending, and the payoff.

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While recent third-quarter results appear to show strong AI growth across leaders Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), Microsoft (NASDAQ: MSFT), and Meta Platforms (NASDAQ: META), only Google parent Alphabet saw a post-earnings surge of about 3% on Wednesday after reporting Tuesday, while Microsoft and Meta were both down about 5% and 4%, respectively, by midday Thursday after their reports Wednesday night.

The disparity appears to be for a very specific reason.

AI-powered growth for all

First, the positives: Both Alphabet and Microsoft showed an acceleration in their cloud-related revenue, as you can see below.

Cloud Segment

June 2024 Growth (YOY)

September 2024 Growth (YOY)

Improvement

Google Cloud

28.8%

35%

6.2 points

Microsoft Azure

29%

33%

4.0 points

Data source: Company press releases. YOY = year over year.

While Meta's AI-powered advertising-heavy revenue growth decelerated from 22% in the June quarter to 19% in September, its top and bottom lines still exceeded analyst expectations.

So, big picture, all three companies showed strong growth in their most AI-oriented segments, with Microsoft's and Google's clouds accelerating, and Meta's core business exceeding expectations.

While Microsoft and Google use AI across their businesses, it's a bit difficult to ascertain the specific AI impact within Google Search and YouTube, or Microsoft Office or Dynamics, even though AI "copilots" are increasingly being integrated into these platforms. So their clouds seem to be a good proxy for the current AI "returns."

The difference: Spending

While all three companies reported strong growth, it was their reported and forecast capital spending numbers that likely explain the difference in their stock performance.

Starting with Meta, it increased its outlook for capital spending to $38 billion to $40 billion for the year, up from a prior range of $37 billion to $40 billion. But CFO Susan Li's commentary regarding the 2025 spending outlook was quite aggressive. She said, "We expect a significant acceleration in infrastructure expense growth next year as we recognize higher growth in depreciation and operating expenses of our expanded infrastructure fleet."