What Meta, Microsoft Earnings Mean for Our Two Chip Holdings

Earlier on Thursday morning we lifted our Meta META price target to $725, maintaining our Two rating given the overbought status of the shares, and shared we would be patient with Microsoft MSFT for now as it contends with cloud capacity constraints.

Let’s move past our initial comments share more granular thoughts, and connect the dots with other holdings, including Nvidia NVDA and Marvell MRVL.

The nuts and bolts of Meta’s December quarter were that the company continued to grow its user base across its family of apps, hitting 3.35 billion daily active users in December. Monetization efforts across the user base continue fueled by a combination of greater ad impressions but also double-digit price increases reflecting stronger online commerce growth. To put this in perspective, advertising accounts for 99% of family of apps revenue and just under 97% of total revenue, with the balance comprised of Reality Labs. That tiny segment is behind the Meta Ray-Ban glasses as well as the company’s AR/VR products, which will continue to be an area of investment in 2025.

This means advertising will continue to be the primary driver of profits and earnings in the coming year as Meta leans further into video across its family of apps and continues to grow ad campaigns with Advantage+, which helps streamline the ad process while enhancing performance leveraging machine learning. Revenue tied to Meta’s Advantage+ shopping grew 70% year over year in the December quarter, surpassing a $20 billion annual run rate. With more than 4 million advertisers using at least one of Meta’s generative AI ad creative tools, up from 1 million six months ago, we see further pricing improvement ahead as Meta monetizes past AI and machine learning investments.

However, Meta clearly telegraphed an ambitious generative AI roadmap for this year, which could restrain the degree of margin improvement we see in the near term. That includes the management team reiterating it will spend $60 billion to $65 billion in capex this year, making it another year of investment. This could result in another step function step up in margins once the company emerges from this spending ramp. As we communicated earlier on Thursday, we’ll revisit our new $725 target based on Meta’s monetization efforts and as its spending outlook is updated in the coming quarters.

Meta and Microsoft Capital Spending

To Meta’s $60 billion to $65 billion in capital spending plan for this year, which as we’ve discussed before is up considerably, Microsoft expects to match December quarter spending levels in each of the next two quarters as it continues to bring more cloud capacity online.

While some are disappointed by the level of growth at Microsoft’s Azure business, up 31%, we’re not going to quibble given the guidance of 31% to 32% growth. Instead, we will be patient with MSFT shares as additional capacity comes online in the coming months and brings even more online in 2H 2025 and 1H 2026. During the earnings call, management shared that it sees capital spending levels in that combined period rising but not as fast as it did in fiscal year 2025. Slower growth maybe but off a higher base, which points to greater overall spending dollars.

Our position has been that we are seeing an AI arms race unfold as companies and other institutions adopt AI and that will continue to drive capacity demands for AI and data center chips, benefitting our positions in Nvidia and Marvell.

We’ll have a more complete picture of what that spending looks like for this year after Amazon AMZN and Alphabet GOOGL report next week, but we would be surprised if they do not telegraph higher spending levels for this year. We are starting to see a recovery in enterprise networking demand and carrier infrastructure. As enterprise and consumer AI adoption grows, we should see the rebound in those markets accelerate, a positive for Marvell.

One topic that was not discussed on either the Microsoft or Meta earnings calls was their proprietary AI chip efforts. While these are medium- to longer-term opportunities for Marvell, we will be looking for comments from Amazon following the December launch of Trainium2 as well as comments from Alphabet about its efforts. Both are also chip partners with Marvell on these efforts.

Digesting those earnings reports next week will also give us a sense as to which companies are winning cloud market share at the expense of others.

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At the time of publication, TheStreet Pro Portfolio was long META, MSFT, NVDA and MRVL.