AI Splurge Looms Large | Seeking Alpha

AI splurge looms large

Microsoft (MSFT) and Meta Platforms (META) sailed past analyst expectations with their quarterly earnings reports. But the Big Tech firms’ guidance for more AI spending has investors worried over the results of these heavy investments in the short term. These concerns have dragged their shares nearly 4% before the bell on Thursday.

AI demand vs. capacity: Microsoft easily eclipsed estimates with its Q1 results as its Azure cloud segment crushed expectations. “AI-driven transformation is changing work, work artifacts, and workflow across every role, function, and business process,” said its CEO Satya Nadella. Shares initially rose after the results, but reversed course after Microsoft forecast slower Azure revenue growth and continued capacity constraints at data centers amid surging demand. It also plans to continue spending heavily on cloud and AI to scale related infrastructure.

All about the money: Meta shares fell despite its Q3 earnings beat, which was tempered by traders’ concerns that heavy technology spending would continue to pressure profits. “We had a good quarter driven by AI progress across our apps and business,” said CEO Mark Zuckerberg. But Meta forecast a “significant acceleration” in spending on AI-related infrastructure in 2025. Zuckerberg acknowledged that this may not be what investors want to hear in the near term, but insisted that the opportunities here “are really big.”

SA commentary: “Microsoft is well positioned to capture market growth opportunity in cloud and AI, thanks to their substantial investments,” said SA analyst Hunter Wolf Research, who continues to expect double-digit revenue and earning growth in the near future. Investing Group Leader Jonathan Weber believes Meta remains an attractive long-term investment, pointing to its rising revenue and cash flows, a fortress balance sheet, and a very reasonable valuation.

Super Micro Computer

Wednesday was a big day for Super Micro Computer (SMCI), which plunged over a third in response to its auditor resigning. It added to the worries of alleged financial reporting and governance issues that have cast shadows on the popular AI stock. Since an all-time high of $122.90 in mid-March, shares are down 73%, finishing yesterday’s session at $33.07. Shares are also dropping again premarket, off another 5% to $31.44.

What are investors saying on the matter? Check out the 400+ comment thread from SA subscribers.

What are analysts saying on the matter? Read the latest article from SA Investing Group Leader Value Investor’s Edge.

What’s next for the company? Auditor resignations are rare, but can happen for a range of reasons. In the case of Super Micro (SMCI), Ernst & Young was the second auditor the company had in a span of 18 months. In order to get things back in order, Super Micro will likely need to take action in these areas or otherwise risk suffering the fate of public firms that have found themselves in similar situations.