Microsoft & Meta: Post-earnings updates to the outlook
Earnings previews
For Microsoft (NASDAQ: MSFT) and Meta (NASDAQ: META) this earnings season demonstrated the resilience of their core businesses, despite uncertainty from tariffs. In addition, the guidance for both companies exceeded expectations highlighting the defensiveness of their business models in a volatile backdrop. The management commentary around the outlook also provided a critical catalyst for the Al trade, as CapEx will continue as initially planned.
Microsoft
Overall, Microsoft delivered a strong quarter with total revenues and operating profit for Q3 coming in ahead of Visible Alpha consensus. On the earnings call, the company gave guidance that also exceeded expectations for Q4.
In the Productivity and Business processes segment, the operating profit margin was 58% in Q3, compared to the consensus of 55%. Looking ahead, Q4 guidance exceeded expectations and estimates for both FY 2025 and FY 2026 have moved higher. It was interesting to note LinkedIn’s year-over-year revenue growth guidance of ‘high single digit’, surpassed consensus of 5% growth.
The Intelligent Cloud business also outperformed expectations for both revenue and operating profit in Q3 and the Q4 outlook, driven by Azure. The new Azure Al Services segment is projected to generate nearly 200% year-over-year growth in FY 2025 and for that to nearly double year-over-year in FY 2026. Profitability is also expected to remain resilient with an expected operating profit margin of 42% for FY 2025 and FY 2026.
The More Personal Computing line also beat revenue and operating profit estimates in Q3 with Gaming and Bing showing increases in growth ahead of expectations. On the call, Nadella called out that Bing and Edge took share and advertising revenue surpassing $20 billion.
Since last quarter, CapEx estimates have been revised up to currently $65.1 billion in FY 2025, and to $74.3 billion in FY 2026, up now 5x from FY 2019. Microsoft reiterated their commitment to building out capacity and capabilities for Al and the Cloud to capitalize on these future opportunities.
Microsoft stock has traded up 13.7% since the Q3 earnings release and has weathered the volatility since the beginning of the year. The consensus P/E for FY 2026 has come up from 27x last quarter to now 30x.
Meta Platforms
Meta’s overall Q1 and outlook were better than expectations, demonstrating their ability to navigate the uncertain tariff environment. Total revenues for Q1 came in at $42.3 billion, ahead of the expected $41.3 billion, driven by strong performance in the Family of Apps segment, especially in the US. The revenue from the Family of Apps segment outperformed consensus by close to $1 billion in Q1. Total operating profit of $17.6 billion beat consensus of $15.4 billion, driven by resilience in the Family of Apps and lower than expected losses for Reality Labs.
Post-Q1 earnings expectations for operating income from the Family of Apps have been revised up over $1.0 billion to $94.1 billion, driven by expected resilience in the US and EU. In addition, the projected losses from Reality Labs for 2025 have also decreased by $.7 billion, driven by lower anticipated losses in the second half of the year.
In Q4 2024, CEO Mark Zuckerberg highlighted that the company planned to invest in servers and data centers to support Al. The initial FY 2025 CapEx guidance of $60-$65 billion was taken up further to $64-$72 billion, highlighting the company’s commitment to Al.
META stock has rallied 16.8% since the Q1 release and down 5.5% since the January release. The consensus P/E for FY 2026 has increased to 20x from 17x last quarter.
