AI continues to drive tech giant revenue

Meta and Microsoft performed well while IBM was subdued

Meta enjoyed a record Q4, with Microsoft also reporting strong results – although missing analyst expectations.

In the same week where US tech stocks dropped off a cliff with the announcement of a low-cost AI competitor in China, their earnings reports were always going to be scrutinised with a fine-tooth comb.

Microsoft and Meta will be happy with their results, but tempered now with the knowledge that shares can’t always go up. IBM, which is less involved in the AI space, saw much more modest growth.

Alphabet and Amazon are due to release their results next week, while Nvidia’s won’t come for another month.

Meta is the big winner

Mark Zuckerberg highlighted his company’s progress on AI, smart glasses and “the future of social media” when announcing Q4 results.

Although Meta's metaverse experiments (‘Reality Labs’ are still a cost centre, recording an operating loss of $5 billion, its social media ad revenue propelled the company to a sharp spike in earnings and profits.

Meta reported a 21% year-on-year increase in Q4 revenue, climbing to $48.38 billion, with net income rising 49% to $20.83 billion.

The company’s full-year results were even stronger. Revenue was up 22% to $164.5 billion, and net income rose to $62.36 billion: a 59% increase.

Looking to the year ahead, Meta forecasts Q1 revenue to be in the range of $39.5-$41.8 billion, reflecting 8-15% YoY growth.

The company didn’t forecast full year revenue, but did do so for expenses. It expects these to be $114-$119 billion, with the largest driver coming from infrastructure costs and employee compensation. The latter will mostly be driven by recruiting staff for their skills in generative AI, compliance and infrastructure, as well as monetisation and Reality Labs (Meta’s metaverse division).

Microsoft AI revenue climbs 175%

Microsoft enjoyed a strong quarter, although unlike Meta it tracks the quarter ended 31st December 2024 as its fiscal Q2’25 so full-year results are not available.

The company, a major shareholder in ChatGPT-developer OpenAI, reported $69.6 billion revenue (up 12% YoY) and net income of $24.1 billion (up 10% YoY).

The big highlight was Microsoft’s AI investments, with annual revenue run rate surpassing $13 billion in the latest quarter, up 175% compared to the same period a year ago.

In terms of segments, Microsoft divides its business into three: Productivity & Business Processes; Intelligent Cloud; and More Personal Computing. These rose 13%, 19% and 0%, respectively.

Intelligent Cloud is the centrepiece of Microsoft’s AI efforts and was mostly propelled by revenue from Azure and other cloud services, which rose 31% YoY. However, the segment’s overall increase was slightly lower than analysts had forecast.

On an earnings call, Microsoft CEO Satya Nadella downplayed concerns about DeepSeek, despite the company’s shareprice taking a hit along with other tech giants this week. He said the Chinese firm had “some real innovations,” and pointed out that DeepSeek’s latest AI model is available on Azure.

IBM’s AI experiments are subdued

Despite some innovations in the space, IBM is not as involved in the generative AI sector as MAMAA firms. Still, it pointed out that its book of gen-AI business stands at $5 billion since inception, up nearly $2 billion quarter-on-quarter.

IBM posted revenue of $17.6 billion in its fiscal Q4’25, up 1% YoY, and net income fell 11% to $2.9 billion. In terms of segments, software revenue rose 10%, but consulting and infrastructure revenue fell 2% and 8%, respectively.

Most of the gains in software came from IBM’s Red Hat business (up 16%) and automation (up 15%). The data & AI and security divisions both saw a smaller increase of 4%.

In the full year, IBM hit revenue of $62.8 billion (up 1%), with net income of $6 billion (down 20%). Software revenue climbed 8% while consulting and infrastructure were down 1% and 4%, respectively.