Microsoft's shares surged over 15% today, adding more than $485 billion to its market value, surpassing Nvidia's previous record. This rally came after the company reported strong Q4 results, with Azure and other cloud services revenue (excluding foreign exchange impacts) increasing by 43%, outperforming the consensus estimate of 39.3%. This represents the fastest quarterly growth in four years for Microsoft's cloud division. The robust performance helped alleviate investor concerns that heavy spending on AI infrastructure might not translate into proportional returns, demonstrating that Microsoft's substantial AI investments are beginning to pay off.
Several brokerages raised their target prices for Microsoft, with the average now reaching $560.90. Analysts highlighted that the growth drivers primarily stemmed from the cloud and AI divisions, indicating significant progress in converting AI spending into earnings. Microsoft anticipates its Azure cloud computing unit to achieve 45% growth on a constant currency basis in its first fiscal quarter, well above analyst estimates of 40.92%. The company reiterated its unchanged spending plans, projecting capital expenditures of $50 billion for the fiscal first quarter of 2027 and $175 billion for the 2026 calendar year.
In contrast, Meta Platforms experienced a decline of more than 9% today after providing a disappointing revenue forecast for Q3, projecting $61 billion to $64 billion, with the midpoint falling below the consensus of $63.17 billion. This slump followed a reported 91% drop in quarterly free cash flow, raising questions about the pace at which Meta's aggressive AI infrastructure spending will translate into monetized output. The contrasting performance between Microsoft and Meta highlighted the market's evolving discernment, rewarding companies that demonstrate clear returns on AI investments while penalizing those where the monetization roadmap remains less defined.
