MSFT vs META: Why Microsoft Is the Better Buy Now

Microsoft and Meta Platforms reported earnings on the same day, but the market's reaction couldn't have been more different. Microsoft shares jumped over 15% after its fiscal Q4 report, while Meta's stock fell more than 9% the next day.

Microsoft impressed investors with a solid quarter: revenue grew 18% to $332 billion, and non-GAAP EPS rose 22% to $17.28. The company also calmed fears about AI spending by guiding to $175 billion in capex for calendar 2026, below the $190 billion analysts expected. Management even said capex will grow again in fiscal 2027, but investors seemed reassured by the company's focus on cash flow.

Meta, on the other hand, delivered strong top-line growth—revenue up 28% to $60.8 billion—but its bottom line took a hit. Net income fell 14%, and EPS of $6.18 missed the consensus estimate of $7.22. The culprit: aggressive AI infrastructure spending that crushed free cash flow from $8.55 billion to just $784 million year over year.

CEO Mark Zuckerberg doubled down on the spending, raising the lower end of 2026 capex guidance to $130 billion from $125 billion, implying a 90% increase at the midpoint. Analysts have responded by trimming earnings estimates, with 2026 EPS growth now projected at just 3%.

The contrast highlights a key divergence in strategy: Microsoft is balancing AI investment with shareholder returns, while Meta is going all-in on AI, even at the expense of near-term profits.

For investors, the key takeaway is that Microsoft is currently positioned to deliver stronger earnings growth than Meta. Microsoft's massive backlog of $678 billion in commercial RPO—up 84%—provides a clear runway for its cloud business, supporting long-term revenue and profit growth.

Microsoft's disciplined approach to capex is also winning over analysts. By spending below expectations while maintaining cash flow positivity, the company is signaling that it can fund AI growth without sacrificing profitability. This is reflected in the positive analyst sentiment and expectations of accelerating earnings growth.

Meta, in contrast, is facing a profitability squeeze. The 91% drop in free cash flow and rising capex guidance suggest that the company's AI bet will continue to pressure margins. Analysts are already cutting estimates, and the negative sentiment could keep the stock under pressure in the near term.

Valuation-wise, the two stocks are close, with Microsoft slightly more expensive. But when you factor in earnings growth prospects, Microsoft's premium looks justified. The market seems to agree, as MSFT has only dropped 2% this year versus META's 14% decline.

Looking ahead, the key question is whether Meta's aggressive spending will pay off in the long run. If AI investments lead to new revenue streams, the stock could recover. But for now, Microsoft offers a more balanced risk-reward profile.