US stock markets experienced significant losses on Thursday, with the tech-heavy Nasdaq Composite plummeting nearly 3% as investors reacted negatively to earnings reports from tech giants Microsoft and Meta. While both companies exceeded earnings estimates, their guidance and commentary about massive AI infrastructure investments triggered a sharp sell-off across the technology sector.
The S&P 500 dropped 1.86% to close at 5,705.37, while the Dow Jones Industrial Average fell 0.9%, losing 378.35 points to end at 41,763.19. The Nasdaq bore the brunt of the decline, closing down 2.76% at 18,095.15, reflecting heightened investor anxiety about the sustainability and profitability of massive AI investments.
Microsoft’s stock tumbled 6% to $406.35 after the company issued disappointing revenue guidance for the current quarter. The tech giant expects revenue between $68.1 billion and $69.1 billion, falling short of the $69.89 billion analysts had anticipated. Microsoft attributed this slowdown partially to its substantial investments in cloud computing capacity to meet surging AI demand, raising questions about when these investments will translate into proportional revenue growth.
Meta Platforms saw its shares decline 4% to $567.68 following announcements of increased capital expenditure plans. The social media giant raised its 2024 capex forecast to a range of $38 billion to $40 billion, up from the previous $37 billion to $40 billion range, and signaled even more aggressive spending in 2025 as it continues building out AI infrastructure. However, UBS analysts maintained a positive outlook, noting that Meta’s revenue growth has accelerated by approximately $28 billion in 2024, nearly matching the pandemic-driven surge of $29 billion in 2021, suggesting the AI investments are beginning to deliver returns.
The market reaction highlights growing investor concerns about the massive capital requirements of the AI revolution and whether tech companies can generate sufficient returns to justify these unprecedented spending levels. This sell-off comes amid a broader reassessment of AI valuations, with some market observers, including legendary investor Jeremy Grantham, warning that AI hype may represent a bubble following the pattern of previous tech manias throughout history.
Key Quotes
While Meta continues to signal a significant increase in CapEx for 2025, the results also highlighted multiple offsets to illustrate what the investments will start to bring - as we have been calling out previously, the easiest item to observe is the absolute step up in revenue dollar growth in 2024 which stands at ~$28B currently and nearly matching the Pandemic-driven acceleration from 2021 of ~$29B
UBS analysts wrote this in a Thursday note, maintaining their positive outlook on Meta’s AI investments despite the increased spending. The statement is significant because it provides concrete evidence that Meta’s AI investments are already generating substantial revenue growth, potentially justifying the company’s aggressive capital expenditure plans.
Our Take
This market correction reveals a fundamental tension in the AI revolution: the disconnect between transformative technological potential and near-term financial returns. While Microsoft and Meta both beat earnings estimates, their guidance exposed the enormous capital intensity required to build AI infrastructure at scale. The 6% drop in Microsoft and 4% decline in Meta suggest investors are recalibrating expectations about AI profitability timelines.
What’s particularly noteworthy is the timing—this skepticism emerges just as AI capabilities are accelerating and real-world applications are proliferating. This creates a paradox where the technology is proving its value while simultaneously requiring unprecedented investment levels. The market’s reaction may actually be healthy, forcing more disciplined capital allocation and realistic ROI expectations. Companies that can demonstrate clear paths to AI monetization will likely separate themselves from those making speculative bets, ultimately strengthening the industry’s foundation for sustainable long-term growth.
Why This Matters
This market reaction represents a critical inflection point for the AI industry, signaling that investors are becoming increasingly skeptical about the timeline and magnitude of returns on massive AI infrastructure investments. While tech giants have poured hundreds of billions into AI development and deployment, the market is now demanding clearer evidence of monetization and profitability.
The sell-off has broader implications for the entire AI ecosystem. If major players like Microsoft and Meta face market pressure over AI spending, it could lead to more cautious investment strategies across the industry, potentially slowing the pace of AI innovation and deployment. This could affect everything from AI startups seeking funding to cloud infrastructure providers and chip manufacturers.
For businesses adopting AI technologies, this development suggests a maturing market where ROI expectations are tightening. Companies will need to demonstrate concrete business value from AI investments rather than relying on future promises. The tension between long-term AI potential and short-term financial performance will likely define the next phase of the AI revolution, separating sustainable AI business models from speculative ventures.
Recommended Reading
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