Meta wowed Wall Street with improvements in ad targeting fueled by AI alongside huge investment. Big tech earnings so far this week have sent a clear warning: investors are willing to overlook soaring spending on artificial intelligence if it fuels strong growth, but are quick to punish companies that fall short. The contrast was clear in Thursday's stock market reaction to earnings from Microsoft and Meta, highlighting how dramatically the stakes have changed since the launch of ChatGPT started the AI boom more than three years ago. Shares of the Instagram parent surged more than 9% on strong sales, while those of Microsoft slumped 10% after its cloud business failed to impress. "The market appears to be questioning whether these massive capital expenditure hikes will generate sufficient returns," said Jesse Cohen, senior analyst at Investing.com.

Meta's shares rose in after-hours trading on Wednesday off the back of a strong earnings report that comes as the company is spending heavily on AI tools. The company's stock price grew around 5% following the report, which revealed the company outperformed analysts' expectations for its second quarter. Meta, which owns Facebook, Instagram and WhatsApp, reported 39.07bn in revenue and 5.16 earnings per share. Both results outpaced market predictions of around 38bn in revenue and 4.7 per share, while the company also reported 8.47bn in capital expenditures – lower than analysts expected. "We had a strong quarter, and Meta AI is on track to be the most used AI assistant in the world by the end of the year," Mark Zuckerberg, Meta's CEO, claimed in a statement.