Last week’s blockbuster earnings aren’t proof of an AI boom

Microsoft and Meta’s strong performance are rooted in past bets, not their expensive visions of an AI future.

The Cardsharps (1594) by Caravaggio

Last week’s earnings from Microsoft and Meta had AI boosters cheering. The former reported an 18% revenue jump, the latter a 22% surge—both far exceeding expectations. The big takeaway is that the multi‑hundred‑billion‑dollar gamble the industry is making on AI data centers is finally paying off.

Not long ago, investors worried that this massive outlay might not generate meaningful returns and result in a bubble. Last week’s earnings seemed to allay those fears. As a result, Microsoft’s share price jumped nearly 6%, enough to push it into the ultra-exclusive $4 trillion club with Nvidia. Meta's jumped over 11%. Together, the two firms helped propel the S&P 500 to all new highs. And with renewed confidence, the race to build ever-more AI data centers is back on full throttle.

The problem with this takeaway, however, is that the reported performance from Microsoft and Meta are not all that indicative of the productivity gains from generative AI. Instead, the structure of their earnings function more as an accounting smokescreen—designed to keep investor confidence high.

Let’s start with Microsoft. I used to work in the company’s cloud division, Azure. Back then, the way the company reported on its cloud earnings felt intentionally opaque. When investor attention was focused on Azure’s cloud revenue, Microsoft never reported Azure sales cleanly. Instead, it bundled them together with server products like SQL Server and other server software products under a broad umbrella called Intelligent Cloud.

Here’s how Microsoft defined "Intelligent Cloud" in its earnings reports:

Our Intelligent Cloud segment consists of our public, private, and hybrid server products and cloud services that can power modern business and developers. This segment primarily comprises:

• Server products and cloud services, including Azure and other cloud services, comprising cloud and AI consumption-based services, GitHub cloud services, Nuance Healthcare cloud services, virtual desktop offerings, and other cloud services; and Server products, comprising SQL Server, Windows Server, Visual Studio, System Center, related Client Access Licenses (“CALs”), and other on-premises offerings.

• Enterprise and partner services, including Enterprise Support Services, Industry Solutions, Nuance professional services, Microsoft Partner Network, and Learning Experience.

And it’s worth noting here that Microsoft’s server products, especially SQL Server, are absolute cash cows, making it especially tricky to really gauge how well Azure is doing. Even when revenue was broken out by product group, Microsoft still bundled "server products and cloud services" with "Microsoft 365 commercial products and cloud services."

On the one hand, this isn't completely non-sensical. Microsoft’s enterprise server and Office businesses are tightly linked to Azure. Customers already using these services are much more likely to also use Azure. On the other hand, this bundling also means that we don't ever get a clear breakdown of Azure's revenue. In fact, it was only last week at the company's most recent earnings call, more than a decade after Azure's performance was seen as central to the company's future, that Satya finally disclosed Azure revenue (surpassing $75 billion).

Microsoft is now reporting on AI revenue in the same way it did Azure. Whatever revenue Microsoft is making from its various AI services is bundled into this much larger Intelligent Cloud basket (i.e., you’ll see that “AI consumption-based services” is just one item on the list). So there's a good chance that the stellar performance from its most recent earnings call has nothing to do with the key technology driving the company’s massive splurge in data centers: generative AI .

Instead, the recent surge in the company's revenue is most likely attributable to increased usage of other cloud computing services on Azure. And given that cloud migration among the world's largest companies have been underway for years—well before the ChatGPT moment—it’s a safe bet that much of the revenue jump from last week reflects prior technological bets that Microsoft made rather than a sudden wave of generative AI adoption.

To be clear, having a strong cloud means that Microsoft is likely to be in a strong position to capture the gains from spreading AI across the economy once the technology is truly ready—but that doesn’t mean it’s happening yet. The technology driving the hundreds of billions of dollars in data centers investment is still very much in untested territory.

Meta’s case is probably even less indicative of generative AI usage. Its even strong earnings performance comes from its ad business, which does use AI—but the traditional machine‑learning variety, not the generative kind driving their massive spending on data‑center build‑out.

The diffusion potential of Meta’s AI services is also far more limited. Unlike Microsoft and other cloud providers, Meta lacks the ability to sell AI services across industries—a key channel for widespread adoption. Yet the company is building data centers with the entire economy in mind. So even if Meta fully embedded generative AI into its ads and social platforms, it’s hard to see how that would produce an ad‑revenue jump large enough to justify the tens of billions in new infrastructure. To make that math work, Meta would have to create entirely new markets. In other words, there’s still no concrete sign that all this AI investment will pay off.

Last week’s blockbuster earnings say more about the past than the future. Microsoft and Meta are reaping the rewards of much earlier bets—enterprise cloud services in Microsoft’s case, and ever‑more‑sophisticated advertising for Meta. That doesn’t mean today’s AI data‑center splurge won’t bear fruit. But whether it will is a question we’ll have to look elsewhere to for answers.