By Adam Levine
Microsoft is a tech behemoth selling to consumers and businesses of all sizes, with a wide range of products and services. But after the company's earnings report Wednesday, investors seized on just the parts related to artificial intelligence.
Microsoft has been engaged in perhaps AI's greatest test case: offering an AI assistant -- for up to $30 per user -- as an upgrade to its ubiquitous Microsoft 365 productivity suite, once known as Office.
Until Wednesday, the company had only offered anecdotal data around adoption among the 450 million users of its 365 suite. This week, Chief Financial Officer Amy Hood revealed that there are 15 million paying Copilot users, 3% of the total. Importantly, they haven't moved the needle much in the company's top line. Revenue at Microsoft's 365 commercial cloud unit grew at 14% after accounting for foreign currency exchange rates, in line with previous quarters. If Copilot sales were brisk, that growth rate would likely be accelerating.
The problem here is twofold. Microsoft's big AI monetization push doesn't seem to be going all that well. And two, Microsoft is using capacity in its all-important Azure cloud to service the business, perhaps at the expense of other, more profitable work.
Investors aren't happy with this trade-off, which explains Microsoft's 10% slide on Thursday, the stock's worst one-day performance since the market's pandemic panic in March 2020. All this, despite the fact that Microsoft's quarterly earnings and revenue beat Wall Street's expectations.
The backdrop is Microsoft's accelerating spending on AI data centers. Last fiscal year it had $88 billion on capital expenditures, and with half of fiscal year 2026 still remaining, that figure is already at $72 billion.
For over a year now, investors have been focusing on the return on Big Tech's investment, and keeping the AI spenders on a short leash.
Microsoft's return on AI investment begins with Azure, its unit that rents out AI servers in the cloud. Quarterly Azure sales were up 38% from last year after removing the effects of currency fluctuations, a little below Wall Street's expectations.
Hood explained that the miss was actually a choice management made. Even after spending all that money on AI data centers, and renting even more computing power from CoreWeave, Azure is still supply constrained. Instead of maximizing Azure revenue, Microsoft allocated more AI servers to its own researchers and to the AI services it's selling to its commercial customers.
Copilot was first announced in March 2023, just four months after the ChatGPT earthquake rocked the tech landscape. It's been available since November of that year and its capabilities have advanced considerably since the initial launch.
But for the time being, investors would seem to prefer Azure maximization over investments in AI services. Demand for AI cloud computing is insatiable in the near term, and they want Microsoft to strike while the iron is hot.
But Microsoft may be more focused on the long term. At some point, cloud computing is likely to become commoditized, and Microsoft is wisely focused on what comes after that.
Meta's fourth-quarter report offered a stark contrast to Microsoft's, and not just in the stock's reaction, which was the mirror image of Microsoft's, up 10% on the news. Meta may already be seeing return on its AI investment with very strong sales growth, even as expenses explode and erode profitability.
At first, Meta stock fell on the earnings release because it contained some mind-boggling large numbers in terms of expense guidance for 2026. After spending $72 billion on capex in 2025, the company projected $115 to $135 billion for this year, and research and development expenses are also skyrocketing. These were all well above what Wall Street analysts were expecting, and unlike Microsoft, Meta has no cloud unit. Its AI data centers are all for its own use.
But then investors looked past expenses to the exceptional sales growth in the fourth quarter along with strong guidance for the current quarter. For a while now, Meta has been talking about how AI is already helping with content recommendations and ad targeting, and the stellar performance may be the result of that. Though its daily user base grew 7% -- to 3.6 billion -- the number of ads shown to users rose by 18%. Either through deeper engagement on social feeds or just stuffing more ads into them, ad views exploded. Impressively, prices for those ads more than held up, rising by 6% on the year. Ultimately, Meta's average revenue per user jumped 16%.
That's the kind of transformation investors are seeking from AI. And, in the case of Meta, it's enough to have them look past the huge expenses driving it all.
Apple's first-quarter earnings were a trip back to the past, to the days before ChatGPT. The topics at hand had nothing to do with AI, but rather Apple's old standby: the iPhone and its rollout in China.
Companywide revenue growth was 16% year-over-year, the best result in four years, back to the strong demand of the Covid era. iPhone sales were up 23% on the year, and Chinese revenue surged 38%. There's still work to do in China; the latest quarter of sales there were still $25 million short of the same period in 2022.
Apple's stock still fell on the news Friday. And that may be because Apple can't escape its own AI questions. Like the rest of Big Tech, the company will be judged on its AI prowess, even though Apple's investments have been relatively modest with $12 billion in capex over the past 12 months.
After fits and starts, Apple seems to have a plan on the AI front. At the company's annual developers conference this spring, we'll likely see the first fruits of Apple's AI collaboration with Google. That should put Apple Intelligence back on the front burner -- and the company's stock back under a microscope.
Write to Adam Levine at adam.levine@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
January 30, 2026 15:07 ET (20:07 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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