Microsoft adds $450 billion in record day as Meta slides 8%

Microsoft's $450 billion one-day gain — the largest ever for a U.S. company — rewarded the AI spending that Wall Street punished at Meta.

The Nasdaq Composite jumped 2.8% Thursday as Microsoft surged 16%, adding $450 billion in market value, the largest one-day gain for any U.S. company.

"Investors have become too myopic about the words 'AI' and 'data center' and they're not stepping back and looking at what's going on," said Richard Bernstein, global head of macro investing at Janus Henderson. "As the free money is going away, investors are starting to look at fundamentals again."

The S&P 500 climbed 1.7% and the Dow Jones Industrial Average rose 1.2%, or 614 points, with Microsoft responsible for about 360 of them. Meta Platforms fell 8%, extending an 11-day losing streak — its longest on record — after projecting free cash flow would turn negative in the second half of the year for the first time since its 2012 IPO.

The divergent reactions frame the central question of the AI trade: whether companies pouring hundreds of billions into data centers and chips can show investors the money. Microsoft's free cash flow totaled $19.6 billion last quarter, versus less than $800 million at Meta.

AI Spending Splits the Hyperscalers

Meta's Q2 revenue rose 28% to $60.8 billion, ahead of the $60.2 billion consensus, but diluted earnings per share of $6.18 missed the $7.14 to $7.22 range, down 13% from a year earlier. Total costs jumped 55% to roughly $42 billion, including $2.4 billion in legal charges and $1.18 billion of severance tied to May's headcount reduction. The company raised its 2026 capital-expenditure range to $135 billion to $145 billion and guided Q3 revenue to $61 billion to $64 billion, a midpoint below Wall Street's expectations. Reality Labs posted a $4.62 billion loss on $431 million of revenue.

Ten firms cut Meta price targets overnight, though most kept bullish ratings. Wells Fargo moved to $640 from $835 and JPMorgan to $640 from $725, the lone Neutral. The shared concern: limited visibility into monetizing AI compute beyond advertising, plus a growing capex and free-cash-flow overhang.

Microsoft, by contrast, relies on debt far less than its peers. Excluding data-center deals, hyperscalers this year are on track to issue about $250 billion in debt for capital expenditures, a figure Goldman Sachs projects will grow to $400 billion in 2027, with another $1.3 trillion over the following three years.

Debt-Financed Expansion Looms

Oracle, heavily reliant on debt to fund capital expenditures, zoomed 8.3% higher, while Amazon climbed 3.9% before beating expectations after the close. The hyperscalers' still-growing spending plans fueled a turnaround in chip stocks: Nvidia and Broadcom advanced, while Micron, Sandisk, Western Digital and Intel each posted double-digit gains.

Individual investors bought the dip in Meta, snapping up $36 million of shares and making it the second-most popular stock of the session, according to flow-tracking firm Vanda Research. Microsoft saw roughly $167 million in net retail outflows. With inflation elevated and longer-dated Treasury yields near their highest levels in years, tightening financial conditions are forcing investors to parse such companies' performances more closely.

"I think there's a recognition that this trend can't go on forever," said Jack Ablin, founding partner at money manager Cresset. "They're going to need to start seeing revenue growth."

Trevor Slaven, Barings' global head of asset allocation and multiasset portfolio solutions, said the pressure has at least momentarily flushed some AI concerns out of the market. "This is a one, two, three-month view," he said. "It's going to be more volatile on the way up and the way down." Longer term, he added, "the competitive nature of the AI build-out almost necessarily means that you will overspend."

This article is for informational purposes only and does not constitute investment advice.