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Talk about a tale of two companies. Today’s June-quarter earnings reports from Meta Platforms and Microsoft showed very different approaches to cost control, a discipline that may never be more important for big tech companies. Meta, whose CEO Mark Zuckerberg seems to have a you-only-live-once approach to AI investment, reported a 55% surge in operating expenses, which helped slash its operating income 8% in the quarter. (A bit of that cost growth was due to legal expenses and employee severance but even excluding those items, costs still rose 42%).
Meta’s free cash flow shriveled by 91% to a bit below $800 million, as capital expenditures nearly doubled to $30 billion—the equivalent of half Meta’s revenue. Microsoft’s numbers look quite different. The cloud and software giant is also spending a fortune on AI-related capex—$35.8 billion in the quarter, although that’s only 40% of its revenue. But Microsoft’s operating expenses rose only 10%. As a result, its operating income rose 18%, quite the contrast to Meta. Investors noticed: While Meta shares fell as much as 10% in after-hours trading, Microsoft stock gained 9%.
That’s not to say the impact of Microsoft’s AI investment isn’t evident in the company’s numbers. The Intelligent Cloud segment, which includes its Azure cloud unit, suffered a 4 percentage point drop in its gross margin to 58% in the full fiscal 2026 year, ending in June. And yet Microsoft managed to squeeze out enough cost savings so that the cloud unit’s operating margin dropped by only about half a percentage point for the full year. On a call with analysts, Microsoft finance chief Amy Hood repeatedly used the word “efficiencies,” and—talking about how Microsoft manages its fleets of chips—said the company’s approach was “being able to get more out of everything.” You get the sense that could apply to how Hood manages everything at Microsoft.
The good news for Microsoft extended to its business. Microsoft said the number of paid subscriptions for its Microsoft 365 Copilot AI assistant doubled to 30 million in the quarter. Its Azure cloud service’s revenue growth accelerated by three percentage points to 43%. That’s far below Google Cloud’s 82% surge in the same quarter, to be sure. But investors clearly appreciate Microsoft’s more careful approach to spending. Whereas Google burned cash in the quarter, Microsoft is still producing enough cash to buy back shares!
Zuckerberg’s Indecision
Meta’s Mark Zuckerberg is always good at confidently outlining his strategy on earnings calls and why he believes in his vision for Meta. But on one subject he is coming across as indecisive: whether Meta is going to rent out some of its computing capacity to make an extra few billion bucks, as Elon Musk has done at SpaceX.
Meta’s issue, you’ll recall, is that it is spending nearly as much as big cloud firms on AI servers and data centers but without the revenue that comes from renting out all that capacity as a cloud firm. However, Zuckerberg has repeatedly dangled the possibility that Meta might rent out spare compute. He made similar comments on Wednesday night, saying more than once that Meta had received a “lot of offers for compute at a significant premium over what we paid for it.”
But Zuckerberg isn’t committing to going ahead. He pointed out, “We also have a lot of internal uses [for the capacity] that we think are going to be quite valuable.” At another point, he said he expected that Meta would earn “significantly higher margins from selling intelligence [via AI services] rather than selling compute directly.” The company was still thinking things through, Zuckerberg said.
It feels like Zuckerberg doesn’t want his business to be a cloud firm but also doesn’t want to be too direct about saying that for fear of upsetting Wall Street more than he already has. The problem is that investors will figure it out in the end. He should just make a decision.
In Other News
• Lilian Weng, a researcher who co-founded AI startup Thinking Machines Lab alongside former OpenAI Chief Technology Officer Mira Murati, is rejoining OpenAI, an OpenAI spokesperson confirmed to The Information.
• Robinhood reported second-quarter revenue of $1.31 billion, up 32% from a year ago. Prediction market revenue rose over 10 times to $156 million, surpassing crypto revenue of $100 million in the quarter.
• Swami Sivasubramanian, vice president of agentic AI at Amazon Web Services, is taking on an expanded role that involves serving as a strategic adviser to other internal teams developing AI products, CEO Matt Garman announced in an email to employees.
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