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Despite posting robust quarterly profits, Microsoft (MSFT+1.05%) and Meta (META+0.24%) shares slumped Thursday as both tech giants signaled substantial future AI spending requirements and slower growth prospects. The companies that have emerged as leaders in the AI sector saw their stocks decline despite heavy investments in generative AI that had previously fueled investor optimism.
The downward pressure rippled through the broader AI ecosystem, dragging down shares of key semiconductor and hardware providers. Nvidia (NVDA+3.10%) fell 4.5%, Advanced Micro Devices (AMD+2.55%) dropped 2.8%, Micron Technology (MU+3.07%) slid 4.4%, and Broadcom (AVGO+3.50%) was down 4.8%. Meanwhile, Super Micro Computer (SMCI-0.96%) faced an even steeper decline, plummeting 15% amid an ongoing dispute with its auditor. The AI hardware company is now at risk of potential delisting from the Nasdaq, adding further uncertainty for investors.
Microsoft can’t meet AI demand
In Microsoft’s (MSFT+1.05%) third-quarter earnings report Wednesday evening, it acknowledged that it can’t build data centers fast enough to meet the AI demand. Microsoft’s “inability to build data centres fast enough has constrained its guidance for the coming quarter,” Richard Windsor, founder of Radio Free Mobile, said in a note.
During a post-earnings call with analysts, Microsoft CEO Satya Nadella said the company has run into external constraints due to high demand for artificial intelligence training and inferencing.
“[Data centers] don’t get built overnight,” Nadella said. “Even in Q2 for example, some of the demand issues we have, or rather our ability to fulfill demand is because of, in fact, external third-party stuff that we leased moving up. That’s the constraints we have.”
The tech giant’s shares were down over 5% during trading on Thursday, trading at $409 per share. The stock is approaching its worst performance in months, having dropped nearly 2% over the past three months.
Meta is spending a lot on AI
Facebook parent Meta Platforms (META+0.24%) has invested billions of dollars into artificial intelligence as it looks to keep pace with its Magnificent 7 competitors. The tech giant warned that this spending will only grow into next year and beyond.
Chief executive Mark Zuckerberg gave analysts a hint of what some of those investments could look like on a call Wednesday but said the company would offer more details once it finalizes its budget in the fourth quarter.
“First, it’s clear that there are a lot of new opportunities to use new AI advances to accelerate our core business that should have strong ROI over the next few years,” Zuckerberg said. “So, I think we should invest more there.”
“And second, our AI investments continue to require serious infrastructure, and I expect to continue investing significantly there too,” he added.
The shares of Meta were down 3.75% on Thursday afternoon.
– Britney Nguyen and Rocio Fabbro contributed to this article