Meta Could Learn Cost Control From Microsoft

Talk about a tale of two companies. Today’s June-quarter earnings reports from Meta Platforms and Microsoft showed very different approaches to cost control, a discipline that may never be more important for big tech companies. Meta, whose CEO Mark Zuckerberg seems to have a you-only-live-once approach to AI investment, reported a 55% surge in operating expenses, which helped slash its operating income 8% in the quarter. (A bit of that cost growth was due to legal expenses and employee severance but even excluding those items, costs still rose 42%).

Meta’s free cash flow shriveled by 91% to a bit below $800 million, as capital expenditures nearly doubled to $30 billion—the equivalent of half Meta’s revenue. Microsoft’s numbers look quite different. The cloud and software giant is also spending a fortune on AI-related capex—$35.8 billion in the quarter, although that’s only 40% of its revenue. But Microsoft’s operating expenses rose only 10%. As a result, its operating income rose 18%, quite the contrast to Meta. Investors noticed: While Meta shares fell as much as 10% in after-hours trading, Microsoft stock gained 9%.