Tech Earnings Spotlight: Microsoft and Meta Exceed Q1 Expectations

Technology giants Microsoft and Meta Platforms both delivered strong quarterly results that surpassed Wall Street expectations on Wednesday, demonstrating resilience in their core businesses while accelerating investments in artificial intelligence infrastructure. Microsoft reported fiscal third-quarter 2025 net income of $25.8 billion, an 18% increase year-over-year, on revenue of $70.1 billion that exceeded analyst expectations of $68.44 billion. Meanwhile, Meta posted first-quarter net income of $16.64 billion, up 35% from $12.37 billion a year earlier, with revenue reaching $42.31 billion, above the projected $41.38 billion.

Both companies’ stocks responded positively to the results in after-hours trading, with Microsoft shares climbing approximately 9% and Meta’s stock rising about 5%. “Our business is also performing very well, and I think we’re well positioned to navigate the macroeconomic uncertainty,” Meta CEO Mark Zuckerberg told analysts during the earnings call, while Microsoft CEO Satya Nadella emphasized his company’s progress in helping “customers unlock the full ROI of AI to capture the massive opportunity ahead.”

Growth Drivers and Revenue Highlights

Microsoft’s Intelligent Cloud segment, which includes the Azure cloud platform and server products, generated $26.8 billion in revenue, marking a 21% year-over-year increase. Azure itself grew by 33%, significantly exceeding analyst expectations of approximately 30%, with AI services contributing 16 percentage points to that growth, according to the company’s earnings report.

For Meta, advertising continued to be the dominant revenue source, accounting for 98% of total revenue in the quarter. The company reported advertising revenue of $41.39 billion, exceeding analyst expectations of $40.5 billion according to Yahoo Finance. This performance is particularly impressive given recent concerns about potential weaknesses in the digital advertising market amid economic uncertainties and changing privacy regulations.

Capital Expenditures Reflect AI Commitments

Both companies revealed substantial increases in capital expenditures focused on artificial intelligence infrastructure. Microsoft reported quarterly capital expenditures of $16.75 billion (excluding finance leases), a nearly 53% increase compared to the same period last year, slightly exceeding analyst expectations of $16.37 billion. This investment aligns with CEO Nadella’s previously announced plan to spend approximately $80 billion in fiscal 2025 on AI-optimized data centers.

Meta similarly raised its 2025 capital expenditures forecast to between $64 billion and $72 billion, up from its previous projection of $60 billion to $65 billion. This increase is due in part to “an increase in the expected cost of infrastructure hardware,” according to the company’s earnings report. These substantial investments reflect both companies’ strategic focus on artificial intelligence capabilities and the infrastructure required to support them at scale, with Meta specifically noting that AI infrastructure will receive a significant portion of this investment.

Reality Labs Performance and Strategy

Meta’s Reality Labs division, which encompasses the company’s metaverse initiatives and virtual/augmented reality hardware, reported an operating loss of $4.21 billion for the quarter, less than the $4.6 billion Wall Street analysts had projected. The division generated $412 million in revenue, down 6% from a year ago and below analyst expectations of $492.7 million, according to CNBC’s analysis.

This continuing pattern of substantial investment with limited near-term returns reflects CEO Mark Zuckerberg’s long-term vision for immersive computing platforms. The division has consistently posted significant losses, with Reuters reporting that “Meta continues to hemorrhage money at its metaverse-oriented Reality Labs unit” in previous quarters as well. Despite these losses, Meta maintains its commitment to this strategic initiative, viewing it as essential to the company’s future positioning in next-generation computing platforms.

User Engagement and Platform Growth

Both companies reported strong user metrics across their platforms. Meta’s family of apps reached 3.43 billion daily active users, exceeding analyst estimates of 3.39 billion. The company’s newer offerings showed significant momentum as well, with Threads reaching 350 million monthly users, up from 320 million in January, and Meta AI attracting nearly 1 billion monthly active users, demonstrating rapid adoption of the company’s artificial intelligence services.

Microsoft similarly reported robust engagement across its product portfolio, particularly highlighting the adoption of AI-enhanced offerings like Microsoft Copilot. In previous quarters, the company noted that “More than 65% of the Fortune 500 now use Azure OpenAI Service,” according to Constellation Research, indicating strong enterprise interest in Microsoft’s AI capabilities.

Forward Guidance and Outlook

Both companies provided optimistic guidance for upcoming quarters, further boosting investor sentiment. Microsoft projected revenue between $73.15 billion and $74.25 billion for its fiscal fourth quarter, with the midpoint exceeding analysts’ expectations of $72.26 billion. The company also forecasted Azure growth to continue at 34-35% at constant currency, above Wall Street’s projections of 31.5%.

Meta offered second-quarter revenue guidance in the range of $42.5 billion to $45.5 billion, aligning with analyst expectations of $44.03 billion. The company also adjusted its 2025 total expense forecast downward to a range of $113 billion to $118 billion, from the previous range of $114 billion to $119 billion. This adjustment, combined with the increased capital expenditure forecast, suggests Meta is reallocating resources toward infrastructure investments while maintaining discipline in other expense categories. Quartz analysts noted that “Morningstar echoed the caution but said the company’s ‘wide economic moat’ will mean that Meta’s sales will grow at a 12% compound annual growth rate for the next five years” in their assessment of the company’s outlook.

Macroeconomic Challenges and Regional Headwinds

Both companies acknowledged potential challenges from shifting macroeconomic conditions, particularly related to global trade tensions and regional advertising markets. Meta specifically noted that it has “begun to see some reduced ad spend from Asia e-commerce exporters,” according to CFO Susan Li, though this was offset by strength in other regions.

Microsoft appears relatively well-positioned to weather these challenges, with GeekWire reporting that “Microsoft is less vulnerable to tariffs that primarily target goods and manufacturing” due to its focus on software and cloud services rather than hardware. Nevertheless, both companies emphasized their ongoing monitoring of macroeconomic conditions and their ability to adjust strategies accordingly.