Microsoft and Meta Demonstrate Strong Growth in Latest Earnings Reports
In a recent podcast, Motley Fool analyst Nick Sciple and host Dylan Lewis explored key developments in the tech sector, focusing on:
- Microsoft‘s double-digit growth across five segments as it invests heavily in AI and cloud technology.
- Why Microsoft is outperforming other major tech companies and boasts the best near-term outlook among the “Magnificent Seven” stocks.
- Meta‘s current advertising performance and its potential future driven by AI.
Additionally, Motley Fool analyst Yasser el-Shimy and host Mary Long continued their examination of Warner Brothers Discovery, highlighting the leadership of David Zaslav in steering the media giant forward.
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This video was recorded on May 1, 2025
Dylan Lewis: The cloud expenditure shows no signs of slowing down. Welcome to Motley Fool Money. I’m Dylan Lewis, here with analyst Nick Sciple. Thanks for joining me, Nick.
Nick Sciple: Always a pleasure to be here, Dylan.
Dylan Lewis: We find ourselves in a market largely influenced by macroeconomic conditions. Microsoft and Meta have reminded investors that substantial earning potential prevails, as evidenced by their recent reports.
Nick Sciple: Indeed, these tech giants have proven resilient despite ongoing economic and consumer demand concerns. Their impressive share performance this week has positively influenced the broader market.
Dylan Lewis: Microsoft reported robust results, with revenue up approximately 13% and net income rising even more. The market reacted favorably, pushing shares up nearly 10% post-report. What stood out to you in these results?
Nick Sciple: Analysts focused heavily on Microsoft’s cloud performance, which saw a remarkable 20% increase in cloud revenue. Delving deeper, Azure’s revenue surged 33%, with AI contributing 16 points of that growth. Management highlighted that Azure’s stronger-than-expected performance also stemmed from non-AI services, including ongoing cloud migrations. While AI garners attention, the cloud sector is still thriving. Additionally, Microsoft’s gaming division, including Xbox, is seeing success, with the Minecraft movie becoming the top film of 2025. However, cloud margins are facing pressure due to ongoing AI investments, yet Microsoft remains a powerful force in the industry.
Dylan Lewis: Their capital expenditures appear committed to growth, unaffected by the broader economic landscape. Microsoft’s leadership has indicated plans for the second half of the year will remain unchanged, emphasizing continued investment in AI and cloud opportunities.
Nick Sciple: Correct. Pre-report speculation suggested big tech might scale back AI spending due to ROI concerns. However, Microsoft’s management confirmed that demand for AI services continues to grow, and they expect AI capacity constraints to occur starting in June, despite an impressive $16 billion in CapEx this quarter and projections of $80 billion for the year. Clearly, they anticipate a strong return on these investments.
Dylan Lewis: Beyond cloud services, Microsoft’s overall business shows strength across five segments posting double-digit revenue growth. Categories like Microsoft 365 are accelerating, and there is a notable uptick in search and news advertising. Some of these may be smaller segments, but they indicate robust performance overall.
Nick Sciple: There’s hardly any point of disappointment in these results. Although commercial cloud revenue may show slight deceleration, transitioning from mid-teens to low double-digit growth, it remains robust. Guidance for Azure still projects strong growth for the upcoming quarter, expected to be around 34-35 percent.
# Microsoft and Meta Show Strong Financial Performance Amid AI Innovations
The latest financial results have highlighted impressive growth from major tech firms, particularly Microsoft and Meta. Microsoft reported a robust 35% constant currency growth in their most recent quarter, and the operating margin is projected to rise. Management noted that as Microsoft shifts towards AI, it has seen better business margins now compared to the earlier cloud transition from on-premise solutions. This ongoing transformation signals continued success across all metrics, with guidance suggesting more positive developments ahead.
Meta’s Strong Ad Performance Amid Market Challenges
Dylan Lewis: Continuing with significant tech developments, Meta also posted strong results, leading to a stock increase of around 5-6%. Similar to Alphabet’s results earlier, Meta’s advertising spend remains robust in the short term, although they have flagged potential softness in future outlooks.
Nick Sciple: In reviewing Meta’s financial performance, revenue climbed 16%, surpassing analysts’ expectations, with net income increasing by 35%. Notably, engagement and advertising efficiency improved considerably. Much of this success stems from investments in AI, solidifying Meta’s position as the leading global social media platform. Their family of apps reached 3.43 billion daily active users, representing 60% of the world’s internet population—a 6% year-over-year growth. Additionally, ad impressions rose by 5%, and the average price per ad grew by 10%, marking the fourth consecutive quarter of double-digit price increases, largely driven by AI innovations. AI recommendations boosted user engagement on Facebook by 7%, Instagram by 6%, and Threads by an impressive 30%.
Moreover, Meta’s adoption of AI tools among advertisers has surged, with a 30% increase in usage during the first quarter. Enhanced ad recommendations, particularly for Reels, are yielding better conversion rates. Notably, conversion growth is outpacing impression growth. Mark Zuckerberg articulated a long-term vision where businesses can specify their objectives—such as selling a product or reaching new customers—and AI will facilitate the process. This overarching productivity increase from AI could position advertising as a larger contributor to global GDP in the coming years. Given these results, Meta’s robust advertising platform is poised for further strength fueled by AI advancements.
Factors Influencing Meta’s Ad Business
Dylan Lewis: Examining Meta’s advertising sector, we note the potential repercussions of tariffs and shifting consumer demand on businesses relying on online advertising. Traditionally viewed as a powerhouse, Meta must contend with consumer purchasing behavior and how advertisers respond. A slight decrease in political spending was evident, and management hinted at possible impacts from Chinese retailers if tariff situations persist.
Nick Sciple: Concerns regarding these factors had emerged leading up to the earnings report. Many major advertisers, particularly Chinese firms like Chen and Timo, previously relied heavily on Meta. With increased tariffs implemented in April, advertising costs for those products could rise substantially. While Meta acknowledged some current business impact from these conditions, revenue guidance for the upcoming quarter remains consistent with expectations. This suggests efficiency gains from other areas may compensate for the lost revenue, contributing to the positive stock performance.
Future AI Developments and Direction
Dylan Lewis: Mark Zuckerberg emphasized that advertising is just one facet of the opportunities AI presents. He identified five primary areas: advertising, enhanced user experiences, business messaging, Meta AI, and AI devices. Which of these do you see as particularly interesting, Nick?
Nick Sciple: Zuckerberg has notably poured resources into AI devices. After facing challenges with Apple’s ecosystem on the iPhone, he aims to establish Meta as a leader in this emerging space. During the last earnings call, he indicated this year is critical for demonstrating the viability of AI-integrated glasses. Sales of Meta’s Ray-Ban glasses have already tripled year over year, and they have rolled out live translation features in all markets, enhancing their functionality. While AI positively impacts their core advertising platform today, it’s noteworthy how the company is evolving for future opportunities.
Dylan Lewis: I hold a more skeptical view regarding the Ray-Ban glasses but see their AI ambitions as promising for the business. Their newly launched stand-alone AI assistant app aims to compete against existing tools like Gemini and OpenAI. How do you think this app will perform, Nick?
Nick Sciple: It will be intriguing to observe. Meta AI already boasts over a billion monthly active users across platforms like Messenger, Instagram, Facebook, and WhatsApp, suggesting a strong user base akin to ChatGPT’s reported figures. However, the distinct nature of the Meta AI app may provide clearer comparisons as it develops, unlike the current integration into other services.
Meta’s AI Ambitions: A Look at Future Strategies and Market Position
As the AI landscape evolves, Mark Zuckerberg’s vision for Meta entails more than just text-based chatbots. Currently, he views these as stepping stones towards a future dominated by voice-based interactions and innovative devices. Zuckerberg emphasizes that Meta’s journey in AI is far from complete.
Dylan Lewis: The stand-alone app approach forces Meta to focus on its business model and the economic realities surrounding AI chatbots. OpenAI has adopted a subscription model, featuring both free and premium versions. Alphabet, and its new Gemini app, similarly take on a subscription format. Traditionally, Meta has operated primarily on an ad-based revenue system. As consumer expectations shift towards subscriptions, it’s likely that Meta will adapt, but they may also explore creative revenue models outside the norm.
Nick Sciple: There’s potential for a new kind of sponsored content. For instance, if users search for products online, tailored ad strategies could effectively guide purchasing decisions. Over time, this could lead to integrating ads into the chat platform, pivoting its primary use from general chat to a shopping assistant. Despite Meta’s current positioning, they are preparing to be leaders in AI. It’s noteworthy that while they face data center constraints, Meta is not operating a commercial AI platform like ChatGPT. Instead, they are leveraging AI primarily for their core business functions.
Dylan Lewis: Mark Zuckerberg excels at articulating the company’s vision. While opinions may vary on his metaverse plans, his monetization strategy for existing apps is clear. In the realm of artificial intelligence, Meta has five major opportunities. How vital is AI for Meta’s long-term success?
Nick Sciple: AI is critical for Meta. Excluding the Reality Labs division, AI significantly impacts their advertising business. It can lower barriers for ad creation, enhancing targeting effectiveness. This improvement will solidify Meta’s already leading position in the advertising realm. Looking at Reality Labs, the chatbot will also serve as a platform for their AI glasses, which are designed to facilitate voice interactions. Zuckerberg envisions Meta AI to be as intuitive as Iron Man’s JARVIS or Siri—yet to deliver on its promise. If successful, these glasses could position Meta as a central player in computing technology. Zuckerberg claims that this year is pivotal for making AI glasses mainstream. Thus, further announcements are anticipated, especially in collaboration with EssilorLuxottica, the parent company of Ray-Ban.
With advancements underway, the current Meta AI glasses may soon evolve. Moreover, Zuckerberg is routinely showcasing these glasses in public appearances, signaling their importance in Meta’s future strategy.
Dylan Lewis: Major tech companies like Apple and Amazon are slated to report earnings soon. Meanwhile, Microsoft shares surged about 10% after their earnings release. They have emerged as the top performer in the MAG 7 through 2025, being the only company in the group showing positive performance. Unlike Alphabet, Microsoft is not under antitrust scrutiny, nor are they as affected by consumer spending as Amazon, Meta, or Apple. Could Microsoft currently have the most favorable outlook among big tech companies?
Nick Sciple: In 2025, that appears to be the case. Microsoft, as an enterprise software provider, seems less vulnerable to economic fluctuations. Their products remain essential and are unlikely to be discarded during downturns. They’ve positioned themselves as tools that help companies enhance efficiency, which could lead to increased demand for their software. However, questions linger about Microsoft’s long-term AI strategy. Their partnership with OpenAI is beneficial, but the relationship has evolved into a complex one. Reports suggest Microsoft is developing its AI models and testing competitors’ products, while OpenAI is forming new partnerships with SoftBank and Oracle. Early reviews of Microsoft’s copilot feature have raised concerns about its value and cost-effectiveness. This dynamic contrasts with Meta’s clearer positioning in AI, suggesting that while Microsoft navigates a complicated path, Meta may have a more straightforward trajectory ahead.
# Microsoft and Warner Bros: Key Insights on Industry Resilience
As the business landscape evolves, Microsoft stands out as a resilient company likely to weather changes, including tariff impacts. Analysts suggest that, regardless of external factors, Microsoft is poised to continue thriving.
Dylan Lewis: Microsoft seems like an enduring partner in the tech industry, akin to a couple in a sitcom’s first season—potentially successful or short-lived, depending on how they navigate challenges like AI.
Nick Sciple: Indeed, Satya Nadella’s leadership propels Microsoft forward, and we’ll see how relationships with innovators like Sam Altman develop.
Dylan Lewis: Thank you, Nick, for your insights.
Nick Sciple: Thank you, Dylan. Always a pleasure.
Next, analyst Yasser El-Shimy joins Mary Long to discuss Warner Bros Discovery and its CEO, David Zaslav, who faces the challenge of steering the media giant into a future of change.
Mary Long: Let’s focus on David Zaslav. Recently, Michael Wolf published a detailed profile of him in *New York Magazine*, discussing his aspirations as a media mogul. Yasser, what thoughts did this piece provoke for you?
Yasser El-Shimy: Zaslav certainly aims to embody the “mogul” title. However, he is a contentious figure in Hollywood, viewed by many creatives as a pragmatic executive focused exclusively on profit. A notable instance was his cancellation of the *Batgirl* movie, which he wrote off after its production was complete. This decision has left him unpopular among the creative circles in Hollywood.
Despite these controversies, Zaslav proved successful at Discovery, transforming it into a profitable company during his tenure. He is applying a similar strategy to Warner Bros Discovery, emphasizing efficiency and diversity in content. While he champions creative projects on platforms like Max, he isn’t afraid to cut underperforming initiatives. Additionally, he has licensed content to other platforms, exemplified by the hit show *Ted Lasso* on Apple TV, showcasing his focus on profitability.
Mary Long: An amusing anecdote from Zaslav’s profile describes a recurring Zoom call with aging media figures discussing the future of the industry—most of whom no longer hold sway. At 72, Zaslav is the youngest participant. The article suggests he believes it’s his role to navigate the media sector through its challenges and restore its relevance.
Yasser El-Shimy: Zaslav’s deep affection for the media world is evident in his dialogue and actions. His willingness to merge with Warner Bros suggests a commitment to revitalizing the industry. Anecdotes, such as his purchase of a historic Hollywood mansion, hint at his romanticism toward film. However, Zaslav must also enhance efficiency to compete against not just traditional studios but also tech giants like Alphabet, Amazon, and Apple.
To achieve this, he is tasked with ensuring that Warner Bros produces content that resonates with modern audiences while maintaining profitability and relevance in a rapidly evolving market.
# Warner Bros. Discovery CEO’s Strategy Faces Mixed Reactions
David Zaslav appears to be banking on franchising to revitalize the DC Comics Universe, much like how Disney leveraged its Marvel franchise. His vision includes expanding artistic endeavors on HBO and ramping up movie and TV projects, such as new iterations of Superman and Batman, as well as a Harry Potter series set for release next year. Zaslav is betting on franchising as a critical component for the company’s future success.
Financial Performance and CEO Compensation
Despite Zaslav’s ambitious plans, Warner Bros. Discovery’s stock performance has been lackluster. After its merger, the stock initially traded at $25 per share, giving the company a valuation of $60 billion. Currently, shares hover around nine dollars, representing roughly one-third of its initial public offering value.
Even as Zaslav works on growing the streaming service Max and reducing the company’s significant debt, his compensation package in 2024 was reported at $51.9 million, a 4% increase from the prior year. This pay structure ties his earnings to free cash flow generation rather than stock performance, which theoretically supports his efforts to manage debt. However, this approach has drawn criticism from industry insiders concerned about creative decisions impacting film production.
Evaluating Incentive Structures
In a discussion with Mary Long, Yasser El-Shimy offered a unique perspective on Zaslav’s compensation model. He expressed that the current structure makes sense given the company’s substantial debt load. Zaslav has successfully reduced the debt-to-EBITDA ratio from five times to 3.8, indicating solid progress. El-Shimy suggested that once the ratio approaches two, incentives should shift to promote growth in the studio and streaming sectors, acknowledging challenges in the declining linear TV market.
While Zaslav has managed the decline in traditional television, El-Shimy emphasized the need for renewed focus on growth in emerging divisions like streaming and film production as a strategy moving forward.
Conclusion
Mary Long concluded the segment by thanking Yasser El-Shimy for his insights into both Warner Bros. Discovery and its CEO. This discussion highlights the complexities of balancing compensation with corporate strategy in a rapidly changing media landscape.
Disclaimer: The views expressed are those of the individual contributors and do not necessarily reflect those of Nasdaq, Inc.
