Microsoft Corporation (NASDAQ:MSFT) added nearly $450 billion in market value on Thursday, the largest single-day gain for any U.S. company ever, after its earnings convinced investors its AI spending is starting to pay off. The stock surged as much as 16%, lifting Microsoft’s market cap to $3.35 trillion and beating Nvidia’s previous record one-day gain of $441 billion. Meta Platforms, Inc. (NASDAQ:META) had the opposite week: its stock fell for an 11th straight day, its longest losing streak on record, down more than 20% in that stretch. On top of that, hedge funds remain bullish on Microsoft.
Why One AI Bet Worked and the Other Didn’t
Microsoft Corporation (NASDAQ:MSFT) beat on nearly everything: revenue, Azure growth, and Copilot adoption. Meta beat on revenue too, but its guidance for the current quarter missed expectations, and its free cash flow plunged 91% year over year. Both companies are spending enormous sums on AI data centers and chips. Janus Henderson’s Richard Bernstein said investors “have become too myopic about the words ‘AI’ and ‘data center'” and are now looking harder at whether that spending is actually converting into cash.
So, did Microsoft actually prove its AI spending works while Meta’s doesn’t, or did the market just reward one good quarter and punish one soft guide, with both stories capable of flipping next quarter?
Source: Seagate
Microsoft’s Bull and Bear Case
Revenue rose 18% to $90.01 billion, beating the $87.62 billion analysts expected, and adjusted earnings hit $4.74 a share versus $4.24 expected. Azure growth shot up to 43%, its best pace in years. Microsoft 365 Copilot passed 30 million paid seats, up from 20 million in April. Commercial bookings rose 8% to $678 billion. Zacks’ Brian Mulberry said the results “struck the tone markets are looking to hear.” At least nine brokerages raised their price targets.
However, Microsoft Corporation (NASDAQ:MSFT)’s stock was still down close to 18% for the year even after Thursday’s pop; free cash flow fell 23% to $19.64 billion this quarter, and capital spending jumped 69% to $41 billion, with more increases planned for next year. Deutsche Bank flagged “some concentration risk” tied to Microsoft’s exposure to OpenAI, which alone accounts for 45% of Microsoft’s $625 billion in unfilled commercial contracts.
Meta’s Bull and Bear Case
Meta Platforms, Inc. (NASDAQ:META)’s advertising business kept growing. Its revenue jumped by 27% year over year to $59.4 billion in the latest quarter. CEO Mark Zuckerberg said the company is fielding offers to lease out its extra computing capacity at a premium price, a possible new revenue stream if it materializes. Not every analyst agreed with the selloff either; Rosenblatt’s Barton Crockett said he didn’t share the market’s negative view.
Still, Meta’s guidance for the current quarter, $62.5 billion at the midpoint, missed the $63.15 billion Wall Street wanted, and free cash flow collapsed 91% to just $784 million as AI spending keeps climbing. Quilter Cheviot’s Ben Barringer said Zuckerberg’s compute-leasing idea was “a little light on detail and relying on what could be done in the future.”
Insider Monkey’s Hedge Fund Data
Insider Monkey’s hedge fund database shows Microsoft had 282 hedge fund holders as of Q1 2026, down from 312 the quarter before. Meta Platforms, Inc. (NASDAQ:META) had 262 holders, up from 256. Microsoft Corporation (NASDAQ:MSFT) still has more hedge funds behind it.
Among their Magnificent Seven peers, Amazon had the highest 353 holders, Alphabet had 265, and Apple had 170.
Conclusion
Microsoft just delivered the clearest proof yet that its AI spending is turning into revenue, and Wall Street rewarded it with history’s biggest one-day gain. Meta is spending just as aggressively but hasn’t shown the same payoff. Its guidance miss and cash flow drop gave the market real reasons to worry. Undoubtedly, hedge funds think Microsoft Corporation (NASDAQ:MSFT) is a better stock to buy than Meta.
While we acknowledge the risk and potential of MSFT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MSFT and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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