Key facts
- Investors are demanding tangible results from AI investments from Big Tech companies.
- Microsoft's options imply a 6.6% move after its earnings report, higher than its 12-cycle average.
- Meta's options imply a 7.8% move after its earnings report, slightly above its 12-cycle average.
- Microsoft's fiscal third-quarter capital expenditure rose 49% year-over-year to $31.9 billion.
- Investors are seeking evidence that AI spending is translating into stronger enterprise adoption and profitability.
Big Tech earnings season is underway, with investors intensely focused on the return on investment from artificial intelligence initiatives. Following a period where chipmakers and hyperscalers have underperformed, the market is showing increased skepticism towards companies pledging billions towards AI development. The primary concern for investors is capital expenditure, and they are seeking concrete evidence of AI's impact on profitability.
Microsoft's options imply a significant 6.6% move in its stock value following its earnings report, a higher-than-average expectation that underscores the market's anticipation for tangible results from its AI investments. The company's fiscal third-quarter capital expenditure rose 49% year-over-year to $31.9 billion. Investors will be watching to see if Microsoft's AI investments are translating into stronger enterprise adoption for its Azure cloud computing platform and AI tools.
Meta's options suggest a 7.8% move after its results, also slightly above its historical average. Investors are looking for Meta to demonstrate how AI is improving its core advertising business, with a focus on user engagement and advertiser ROI. The company has also seen significant job cuts and restructuring in its Xbox-related business.
Amazon's AWS is also a key focus, with investors anticipating signs of accelerated cloud growth and robust demand for AI workloads. The high expectations set for these AI-focused companies mean that any perceived shortfall in delivering tangible results could lead to swift stock selling.
Despite recent underperformance and cost concerns, some investors remain bullish. One trader spent approximately $10.4 million on call options tied to Microsoft, betting on a rise above $450 by August. Bullish bets were also placed on the broader software sector via the iShares Expanded Tech-Software Sector ETF.