Despite uneven earnings, AI is still Big Tech’s star

Big Tech’s earnings season is nearly over, with just Amazon and Nvidia left to announce their quarterly performance. And despite uneven reports from some of Silicon Valley’s biggest names so far, AI continues to be the star of the show for Wall Street.

Microsoft (MSFT) missed on cloud revenue, Meta (META) said sales growth would slow in the current quarter, Apple (AAPL) fell short of iPhone revenue estimates, and Google (GOOG, GOOGL) disappointed on cloud growth. President Trump’s tariffs on goods out of China, which have kicked off a tit-for-tat trade battle that’s pulling in Google and Apple, and the emergence of DeepSeek’s low-cost AI models haven’t helped things either.

But analysts aren’t overly concerned, focusing instead on Big Tech’s long-term AI bets.

“Tech sector volatility is likely to continue in the months ahead. But we see the initial set of large-cap tech results as reassuring and believe the AI growth story remains intact,” UBS’s Chief Investment Office team wrote in its Daily Updates note.

Nvidia (NVDA), the AI trade’s bellwether, doesn’t report its earnings until Feb. 26, and a miss on earnings or outlook could send AI stocks off the rails. But for now, it’s all about AI’s future.

Microsoft and Meta kicked off earnings last week, with both companies beating analysts’ expectations on the top and bottom lines. But dig deeper and the beats start to look less impressive. Microsoft reported cloud revenue of $40 billion in the quarter, shy of the $41.1 billion Wall Street was looking for.

The company’s Intelligence Cloud platform, which includes Azure services, came up short too, posting revenue of $25.5 billion on expectations of $25.8 billion. Microsoft said part of the problem had to do with demand outpacing its available capacity for cloud services and that non-AI cloud services were lower than expected because it’s working to “balance driving near-term non-AI consumption with AI growth.”

Despite that, AI services grew 157% year over year and contributed 13 percentage points of growth to Azure overall.

“While investors wanted a more pronounced 2H [acceleration] from Azure, we continue to believe [Microsoft] is the predominant software AI winner,” Jefferies analyst Brent Thill wrote in a note to investors.

Microsoft CFO Amy Hood says cloud capacity should meet customers’ needs by the end of the company’s fiscal 2025.

Meta, for its part, declined to provide full-year guidance for its fiscal 2025, but pointed to growth opportunities via its heavy AI investments. The company is planning to spend upwards of $65 billion building out its AI services this year, including launching its next-generation Llama 4 AI model.

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Meta also pushed back against fears that DeepSeek’s low-cost AI is a danger to its business, something Pivotal Research Group’s Jeffrey Wlodarczak agreed with in his investor note following the company’s earnings report.

“We expect [Meta’s] open-source Llama AI to emulate the best of DeepSeek’s techniques, which should allow Llama to take the lead in AI given likely significantly lower costs than their peers for best-in-class AI products boosted materially by the fact it is US based and open-sourced which will attract developers,” Wlodarczak wrote.

Google parent Alphabet’s stock plummeted Wednesday after coming up short on cloud revenue in the prior quarter. Like Microsoft, Google laid the blame on greater demand for its cloud services than is currently available.

The fix? Spending $75 billion in 2025 on its AI build-out. That’s up from the $57.9 billion analysts were anticipating. The hope, among analysts and investors, is that those billions help even out Google’s supply and demand imbalance.

“We continue to see a favorable risk/reward for Alphabet and think there is a case for multiple expansion in the coming quarters as investors gain more comfort related to infrastructure spending, regulatory risk, and the impact of generative AI on Google Search,” Wedbush’s Scott Devitt wrote in an investor note.

Then there’s Apple, which like Microsoft and Meta, beat analysts’ expectations on earnings per share and revenue. But the company fell short of Wall Street’s anticipations on iPhone sales, reporting revenue of $69.1 billion on expectations of $71 billion.

Apple’s Apple Intelligence AI platform was supposed to help buoy iPhone sales, but with the service only available in English, it’s missing out on a large portion of its user base, especially in China. The company says it will launch Apple Intelligence in more languages in the coming months.

CEO Tim Cook also said iPhone sales performed better where Apple Intelligence is available, indicating that the platform is helping to drive upgrades, something that is sure to please investors if it holds true for other regions.

Now Apple, like the rest of its Big Tech cohort, just needs to deliver on its AI promises.

Email Daniel Howley at [email protected]. Follow him on Twitter at @DanielHowley.

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