Meta Platforms META and Microsoft MSFT have evolved as artificial intelligence (AI) powerhouses with significant investments in developing AI infrastructure and applications. While Meta Platform plans to invest between $64 billion and $72 billion, driven by Generative AI and core business needs, Microsoft expects capital expenditures to increase in the coming years to support growth in its cloud offerings and investments in AI infrastructure and training. Microsoft’s investment in Open AI has been a catalyst in driving the adoption of Generative AI.

According to IDC, the global AI infrastructure market is expected to surpass $200 billion in spending by 2028. AI adoption is expected to grow exponentially as hyperscalers, cloud service providers, private companies and federal governments plan to deploy and leverage AI. The massive opportunity bodes well for both Meta Platforms and Microsoft.

So, META or MSFT, which is a stronger pick now?

The Case for Meta Platforms Stock

Meta Platforms focus on improving advertisers’ return on ad spending is a key catalyst. Its proprietary machine learning system, Andromeda, for retrieval in ad recommendation is powered by NVIDIA. AI is helping META better at targeting and finding the right audience for advertisers.

The launch of the new Generative Ads Recommendation model for ads ranking that is being used in Facebook Reels has increased conversion rates by 5%. Meta Platforms also saw 30% more advertisers using AI creative tools. Improvements in META’s recommendation system have led to a 7% increase in time spent on Facebook, a 6% increase on Instagram, and a 35% increase on Threads over the past six months.

Meta Platforms’ focus on making Meta AI the leading personal AI with a deepening emphasis on personalization, voice conversations, and entertainment is a key catalyst. The launch of Meta AI’s standalone app is a noteworthy development in this regard. Growing sales of Ray-Ban Meta AI glasses as well as Quest is noteworthy for META’s prospects.

The Case for Microsoft Stock

Microsoft is benefiting from its strategy of infusing AI in its applications. The company has more than 60,000 Azure AI customers, up nearly 60% year over year. The Azure AI Foundry application and agent development hub has now been adopted by developers at more than 70,000 enterprises and digital-native companies. 

Microsoft's Azure AI Agent Service has been utilized by more than 10,000 organizations to build, deploy and scale agents. The company's Phi small language models have gained significant traction, with 38 million downloads to date. In the development space, GitHub Copilot's code review agent has handled more than eight million requests, while GitHub Copilot itself has surpassed 15 million users, representing more than fourfold growth year over year.

Microsoft 365 Copilot continues to expand its global footprint with hundreds of thousands of customers worldwide and usage is increasing threefold compared to the previous year. Microsoft Copilot has proven instrumental in enhancing employee productivity and creativity, with data from the Work Trend Index research showcasing potential time savings of up to 10 hours per month. Microsoft is now extending Copilot’s capabilities across its entire product spectrum, including Windows, Microsoft 365, Microsoft Teams and Edge. The adoption of Copilot Studio has been particularly strong, with more than 230,000 organizations, including 90% of the Fortune 500, implementing the technology.

Story Continues

META Shares Outperform MSFT

Meta Platforms shares have outperformed Microsoft year to date. While META shares appreciated 12.5% Microsoft returned 7.5%. However, higher tariff announced on Liberation Day has negatively impacted Meta Platforms shares as compared with Microsoft. Since April 2, Microsoft shares have appreciated 18.6% while Meta Platforms returned 12.8%.

META and MSFT Stock’s PerformanceZacks Investment Research

Image Source: Zacks Investment Research

META & MSFT’s Earnings Estimate Revisions Positive

The Zacks Consensus Estimate for META’s 2025 earnings is pegged at $25.52 per share, up by 2.7% over the past 30 days, indicating a 6.96% increase over fiscal 2024’s reported figure.

Meta Platforms, Inc. Price and ConsensusMeta Platforms, Inc. Price and Consensus

Meta Platforms, Inc. price-consensus-chart | Meta Platforms, Inc. Quote

The consensus mark for Microsoft’s fiscal 2025 earnings has increased 2% to $13.30 per share over the past 30 days, suggesting 12.71% growth over 2024.

Microsoft Corporation Price and ConsensusMicrosoft Corporation Price and Consensus

Microsoft Corporation price-consensus-chart | Microsoft Corporation Quote

Both META’s and MSFT’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters. Meta Platforms’ average surprise of 17.3% is better than Microsoft’s surprise of 5.21%, reflecting good quality of earnings beat on a consistent basis.

Valuation: META is Cheaper Than MSFT

Both Meta Platforms and Microsoft are overvalued, as suggested by the Value Score of D. 

In terms of forward 12-month Price/Sales, Meta Platforms shares are trading at 8.57X, lower than Microsoft’s 10.9X.

MSFT and META ValuationZacks Investment Research

Image Source: Zacks Investment Research

Conclusion

Although both Microsoft and Meta Platforms are leveraging AI to boost their prospects Microsoft is better positioned compared with META given strong adoption of Copilot, Azure AI services and a rise in AI Copilot business.

Currently, Microsoft has a Zacks Rank #2 (Buy), making the stock a stronger pick compared with Meta Platforms, which has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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