Focus: Second Quarter 2026 Earnings for U.S. Stocks

Mark Zuckerberg (left) and Satya Nadella represent two tech giants on vastly different trajectories. The latest June quarter earnings from Meta Platforms, Inc. and Microsoft reveal sharply contrasting approaches to cost management. In the current environment, meticulous cost control is crucial for major tech companies.

Meta CEO Mark Zuckerberg is pursuing a live-in-the-moment, high-stakes bet on AI, with operating expenses surging 55% this quarter, directly causing an 8% year-over-year decline in operating profit. (While some of this cost increase stems from legal fees and employee severance, even excluding these items, overall costs still rose 42%). Meta’s free cash flow plummeted 91% to less than $800 million; capital expenditures nearly doubled to $30 billion, equivalent to half of Meta’s total revenue.

Microsoft’s earnings painted a completely different picture. The cloud and software giant also invested heavily in AI-related capital expenditures, spending $35.8 billion this quarter. However, this amount accounted for only 40% of Microsoft’s revenue. Meanwhile, Microsoft’s operating expenses rose just 10%, while operating profit increased by 18%, forming a stark contrast with Meta.

Capital markets reacted clearly: Meta shares fell as much as 10% in after-hours trading, while Microsoft shares rose 9%. Of course, Microsoft’s massive AI investments still left a mark on its financials. For the full fiscal year 2026 ending in June, the gross margin for the Intelligent Cloud segment, which includes Azure, fell 4 percentage points to 58%. However, through various cost-saving and efficiency measures, Microsoft managed to limit the full-year operating margin decline for its cloud business to just about 0.5 percentage points.

Microsoft CFO Amy Hood repeatedly mentioned "efficiency optimization" on the analyst call. When discussing the company’s management of computing clusters, she stated that Microsoft’s core philosophy is "to get the most out of every resource." It is clear that this efficient management logic permeates the operations of all segments under Hood’s leadership.

Microsoft also reported positive news in its own business. The company disclosed that paid subscriptions for Microsoft 365 Copilot doubled this quarter to 30 million. Azure cloud revenue growth accelerated by 3 percentage points to 43%. While this growth rate lags behind Google Cloud’s 82% increase for the same period, investors clearly favor Microsoft’s prudent spending model. While Google continues to burn cash this quarter, Microsoft maintains ample cash flow, even allowing it to buy back its own shares.

Zuckerberg's Indecision

On the earnings call, Meta’s Zuckerberg typically articulates the company’s strategy confidently, demonstrating his belief in Meta’s vision. However, he remains hesitant on one point: whether Meta should follow Elon Musk’s SpaceX in renting out idle computing power to generate billions in additional revenue.

Looking at the current situation: Meta has invested in AI servers and data centers on a scale comparable to major cloud providers, yet lacks the steady revenue from computing power leasing that cloud service providers enjoy. Zuckerberg has repeatedly hinted that Meta might lease out its excess computing capacity. On Wednesday evening, he again mentioned that numerous organizations have approached them, willing to pay a premium far above Meta’s hardware procurement costs. However, Zuckerberg remains unwilling to finalize a plan. He stated, "These computing resources still have a lot of high-value internal uses." He also argued that by offering AI capabilities as a service, Meta could achieve much higher profit margins than by directly selling computing power. Zuckerberg said the company is still weighing the options. The signs suggest Zuckerberg does not want to turn Meta into a cloud provider, but is reluctant to say so directly, fearing it might further upset Wall Street. However, investors will eventually see the reality, and Zuckerberg should make a final decision decisively.

Other Industry News

An OpenAI spokesperson confirmed to The Information that AI researcher Lilian Weng has returned to OpenAI. Weng previously co-founded the AI startup Thinking Machines Lab with former OpenAI CTO Mira Murati.

Robinhood reported second-quarter results: revenue of $1.31 billion, up 32% year-over-year; prediction market revenue surged over tenfold to $156 million, surpassing the $100 million revenue from its cryptocurrency business this quarter.

Swami Sivasubramanian, Vice President of Agentic AI at Amazon Web Services, has expanded his role to also serve as a strategic advisor to the company’s other AI product development teams. AWS CEO Matt Garman announced the personnel change in a company-wide email.