Microsoft, Meta results signal AI spending concerns were overblown. Wall Street picks next winners goodinves.com
Big Tech companies are continuing to spend on artificial intelligence infrastructure and data center buildouts, quieting concerns about their growth and reviving investor sentiment in other parts of the AI market. Quarterly results from Microsoft and Meta released on Wednesday indicated that both giants are maintaining their AI spending plans despite the threat of tariffs, which could raise costs for data center parts that come from overseas. Wall Street cheered the results as both stocks rallied. “Contrary to investors’ worries of slowing capex, it appears that spending for AI continues to be unabated,” Citi analyst Christopher Danely wrote in a Thursday note to clients. “AI infrastructure buildouts remain as key priorities for hyperscalers with the companies’ willingness to absorb the costs of tariffs. We view this as positive for AI-exposed stocks.” Microsoft on Wednesday reported that its capital expenditures, excluding finance leases, reached $16.75 billion for its fiscal third quarter, up nearly 53%. CEO Satya Nadella said earlier this year that Microsoft plans to spend $80 billion in fiscal 2025. Meta, meanwhile, increased its 2025 capital expenditures to partly reflect an “increase in the expected cost of infrastructure hardware,” from suppliers who source from countries around the world, the company said. According to Citi’s Danely, confirmation about hyperscaler spending is good news for stocks such as chipmakers Broadcom , Advanced Micro Devices , Micron Technology as well as Monolithic Power Systems , which makes power circuits for systems in cloud computing and other applications. Shares of Broadcom, which works on Google’s custom AI chips, are down 15% this year but have notably jumped more than 16% over the past month after the company beat first-quarter expectations . Broadcom recorded recorded $4.1 billion in AI revenue during the period, 77% higher on a year-over-year basis, as the company touted continued strength in its AI semiconductor revenue. JPMorgan analyst Samik Chatterjee and Barclays analyst Tim Long similarly pointed to the hyperscaler results as a sign that robust investment momentum is still alive, and named cloud and networking products providers as beneficiaries. “We view the latest earnings reports by the US CSPs as corroborating our expectations that there is likely limited near-term impact relative to capex trajectories despite broader investor concerns around a slowdown in AI investments, which has been compounded in recent months given the tariff volatility,” Chatterjee wrote in a Wednesday note to clients. In light of the hyperscaler results, Chatterjee said he continues to look favorably on companies with leverage to cloud demand, such as Arista Networks , Amphenol and Coherent . Chatterjee added Arista to the firm’s “Analyst Focus List” in April, with catalysts for upside on the stock including anticipated acceleration in revenue growth in 2026 and 2027, driven by higher adoption of ethernet in artificial intelligence data centers. Long similarly views Arista as a beneficiary, pointing out that roughly 35% of the company’s revenue came from Microsoft and Meta in fiscal year 2024. “ANET’s share at MSFT is already significant at 60%+ and higher AI spending could drive more switching business for them,” Long said.
