Meta and Microsoft Show AI Spending Can Be a Double-Edged Sword

On a day when US tech stocks lost nearly $1 trillion due to concerns about artificial intelligence spending, Meta Platforms Inc. reached a record high, indicating that investors remained confident in its AI plans. The Facebook parent’s stock remained unaffected by the perceived challenge from Chinese startup DeepSeek, whose AI model is open-sourced, similar to Meta’s Llama. This recent strength contrasts with Microsoft Corp., whose shares have declined due to concerns about heavy AI spending, including its stake in OpenAI, a key competitor to DeepSeek.

Both companies are set to report earnings on Wednesday, with the returns from AI spending being a central theme. Gene Munster, co-founder and managing partner at Deepwater Asset Management, believes Meta is in a better long-term position with AI than Microsoft, and the success of DeepSeek validates Meta’s open-source strategy. Munster suggests that Llama could become “the DeepSeek of the West” as U.S. companies are unlikely to build off a China-based model.

Meta shares have risen 13% in 2025, building on last year’s rally of over 65%. In comparison, Microsoft has risen 3.1% this year and only 12% over 2024. Both companies have emphasized their commitment to spending. Meta announced plans to invest up to $65 billion on AI projects in 2025, more than expected. Microsoft plans to spend $80 billion this fiscal year.

Microsoft’s recent reports have disappointed, and its spending has come under scrutiny, especially as its AI services show limited traction. In contrast, Meta reported last quarter that AI was having a positive impact on nearly all aspects of its work, reinforcing the view that its spending boost is a sign of faith in its strategy. David Katz, chief investment officer at Matrix Asset Advisors, noted that the market seems to be embracing Meta’s spending because it believes there will be a good return. However, the impact on profitability is not yet clear.

Meta’s spending has been a focus for investors, both positively and negatively. The stock sold off by a record 64% in 2022 as CEO Mark Zuckerberg failed to justify funneling billions into building the metaverse. However, subsequent cost-cutting as part of a “year of efficiency” reignited the stock’s upward trajectory, and Wall Street is largely supportive of its AI spending.

Microsoft trades at over 30 times estimated earnings, above its long-term average and a premium to the Nasdaq 100 Index, which has a multiple of about 26. Meta, at 24 times forward earnings, is only slightly over its 10-year average and is the cheapest megacap stock outside Alphabet Inc. George Cipolloni, a portfolio manager at Penn Mutual Asset Management, believes Meta screens as stronger on both momentum and fundamentals, but the success of DeepSeek could change how we view the efficiency of AI spending.

Nvidia Corp. shares plummeted 17% on Monday, erasing more than $590 billion from the company’s market capitalization, the largest one-day drop in market history. The selloff came amid fears about the implications of DeepSeek, although the chipmaker sought to downplay those concerns. With the day’s drop, Nvidia is now down 12% this year.

The success of DeepSeek’s new AI model suggests that China might eventually achieve a significant technological breakthrough despite US export restrictions: producing its own cutting-edge chips. Microsoft is in talks to acquire the US arm of ByteDance Ltd.’s TikTok, according to President Donald Trump. Meta and Instagram have asked a Delaware federal court to pause an insurance coverage dispute over lawsuits alleging harm to adolescents caused by social media platforms designed to maximize screen time.