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Good morning, investors. I’m flying out to Omaha today to meet 40,000 Berkshire Hathaway shareholders for the weekend. But first, this morning we’re covering Meta and Microsoft’s blowout earnings, the US-Ukraine deal, and a contracting economy.

Meta and Microsoft’s massive AI spending is a moat, not a liability

Meta and Microsoft both reported blowout earnings on Wednesday, reinforcing their dominant positions in Big Tech.

Less obvious but more consequential than their headline numbers for the first quarter is what their ambitious spending plans reveal about the artificial intelligence race.

• Meta posted earnings per share of $6.43, above the $5.28 expected by analysts polled by LSEG, and $42.31 billion in revenue, above estimates for $41.40 billion.

• Microsoft pulled in an EPS of $3.46, above $3.22 expected, and $70.07 billion in revenue, outpacing the $68.42 billion forecast.

Both stocks climbed after hours.

As astonishing as the backward-looking numbers appear, the intrigue lies in what the businesses will do with all that cash.

Meta raised its 2025 capital expenditures forecast to as high as $72 billion, up from $65 billion. And Microsoft spent $16.75 billion just last quarter — a 53% increase from a year ago.

Those are infrastructure numbers, not product budgets. That means data centers, servers, and computing power.

Increasingly, AI looks like a capital markets sport. The companies with the biggest wallets get the best data, the fastest chips, and the most entrenched customer base.

They build the most robust tools and command the widest distribution.

With Meta, Mark Zuckerberg has touted roughly 3 billion users across WhatsApp, Instagram, and Facebook. That kind of scale becomes self-reinforcing.

More users means more data to train AI models, which then affords better models and ultimately a wider moat. Over the long run, that equation makes Meta’s $4.2 billion loss in its Reality Labs division look like a rounding error.

No wonder the S&P 500’s technology sector continues to lead in expected earnings over the next 12 months.

Microsoft, meanwhile, has turned its Azure cloud into a full-stack AI utility. Revenue from Azure grew 33% in the quarter, with half that growth tied to AI.

Plus its Intelligent Cloud division saw $26.75 billion in revenue, up more than 20%.

For context, most AI startups run on Microsoft’s infrastructure. 

All this adds up to a daunting landscape for challengers.

The companies that are already big and rich are getting bigger, richer and smarter. A business that can invest $50 billion a year into AI doesn’t need to be perfect with capital allocation, it just needs to keep spending.

A couple more quarters like this for Big Tech and scrappy will no longer cut it. The fastest horses in the AI race are the biggest spenders.

Meta and Microsoft continue to pull ahead.

Market snapshot

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Elsewhere

🤝 The US and Ukraine signed a deal Wednesday on a joint fund to invest in Ukraine’s reconstruction, and it will give Washington access to the country’s natural resources. The nations signed the accord after months of fraught negotiations. (Reuters)

📉 The US economy contracted for the first time since 2022. The first-quarter GDP report came in at an annualized rate of -0.3% Wednesday. Importantly, all the economic data included in the report happened before Trump’s Liberation Day, and it also reflected a sharp dip in government spending. (Axios)

📊 Companies slowed hiring in April. Private sector payrolls rose by 62,000 in the month, the smallest gain since last July and below the 147,000 seen the prior month. Hospitality jobs posted the biggest gains, while education and health services lost the most jobs. (Reuters)

🎙️ If you want more daily briefings, our friends at The Flyover just launched a podcast — unbiased news on politics and business in 15-minute bites. Tune in on YouTube, Spotify, or Apple.

Rapid-fire

• Tesla’s board reportedly opened a search for a CEO to succeed Elon Musk (WSJ)

• A judge ordered Apple to loosen App Store restrictions (WSJ)

• A trading boom fueled Robinhood to a 106% increase in diluted earnings per share (Barron’s)

• Oil prices have seen their biggest monthly drop since 2021 (Yahoo Finance)

• Elon Musk says DOGE has saved $160 billion in government funds, and he plans to reduce his time with the agency moving forward (CNBC)

• Prediction markets and big banks are suddenly on the same page about the economic outlook (Opening Bell Daily)

• Crypto incumbents are making billions and Wall Street wants in on the action (Pomp Letter)

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About me

📰 I’m Phil Rosen, co-founder and editor-in-chief of Opening Bell Daily. I’ve published books, lived on three continents, and won awards for my journalism, which has appeared in Business Insider, Fortune, Yahoo Finance, Bloomberg and Inc. Magazine.

I write our flagship newsletter to prepare you for each trading day, unpacking markets, economic data and Wall Street with analysis you won’t find anywhere else. Feedback? Reply to this email, ping me on X @philrosenn, or write me directly at [email protected].