Microsoft shares (MSFT.O), opens new tab fell 3.5% in premarket trading on Thursday after the company issued a downbeat forecast for its cloud business, while Meta (META.O), opens new tab rose 2.6% after beating quarterly revenue estimates.

The chief executives of Microsoft and Meta defended their hefty investments on artificial intelligence, days after Chinese upstart DeepSeek revealed a breakthrough in low-cost AI computing that shook the U.S. technology industry.

Investor sentiment around Microsoft took a hit from its AI spending splurge that's yet to show signs of any big payoff. Concerns around competition from the cheaper Chinese AI model as well as weakness in the cloud business also weighed on the stock.

"Short term, we will see a pause in MSFT shares as the 2H reacceleration story for Azure is not playing out," but the long-term narrative remains intact, Barclays analysts said.

Microsoft's Azure unit reported 31% revenue growth for the fiscal second quarter, slightly below Visible Alpha's 31.8% estimate.

For Facebook parent Meta, investors focused on the company's fourth-quarter revenue beat even as it predicted sales in the first quarter may not meet forecasts.

"Big picture, META's multiple could expand over the course of the year as we see its consumer and advertiser sources of utility and repeat engagement and incremental monetization grow," said Morgan Stanley analysts led by Brian Nowak. At least three analysts cut their price targets on Microsoft, while ten raised price targets on Meta following the results, according to data compiled by LSEG.

In 2024, Meta rose 65% and Microsoft gained 12%. Meta has a 12-month forward price-to-earnings ratio of about 26.22, while Microsoft's is 31.3. Source: reuters

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