Microsoft vs. Meta: Which AI Stock Is a Better Buy Headed Into Their Earnings Reports Next Week?

Key Points

• Strong Azure growth is helping drive impressive double-digit revenue and earnings-per-share growth at Microsoft.

• Meta’s top-line momentum has been particularly impressive recently.

• Both companies have signaled a massive step-up in capital expenditures for 2026.

• 10 stocks we like better than Microsoft ›

Investors are eagerly waiting to see how the artificial intelligence (AI) boom is impacting the bottom lines of some of the world’s largest companies. And we are about to get some answers. Both Microsoft (NASDAQ: MSFT) and Meta Platforms (NASDAQ: META) are scheduled to release their latest quarterly financial results on April 29.

These two technology behemoths have positioned themselves at the center of the AI transition. Microsoft has aggressively integrated AI assistants into its enterprise software suite and cloud infrastructure while also expanding its cloud computing business. Meta, meanwhile, is deploying heavy compute power to optimize its content feeds and digital advertising algorithms while simultaneously developing a personal superintelligence.

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But as we head into next week’s highly anticipated earnings reports, which of these two growth stocks is the better place for your capital?

Image source: Getty Images.

Microsoft faces intense competition

Microsoft’s business remains rock solid. In its second quarter of fiscal 2026 (a period that ended on Dec. 31, 2025), the software giant delivered non-GAAP (adjusted) earnings per share of $4.14 — up 24% year over year and beating analyst expectations. Further, its cloud computing segment continues to attract businesses eager to train and run their own machine learning and AI models.

But looking ahead, Microsoft’s core software franchise arguably faces intensifying competition on all sides. The rapid advancement of artificial intelligence — specifically generative and agentic AI, which involves systems that can write code or create content — lowers the barrier to entry for software development and speeds up the rollout of competing software features by existing competitors.

Even more, Microsoft is battling deep-pocketed tech giants like Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) and Amazon (NASDAQ: AMZN) across the cloud computing landscape. This competitive pressure could mean Microsoft has to continually invest aggressively just to maintain its technical edge.

As of this writing, Microsoft trades at a price-to-earnings ratio of about 26. While that multiple is not necessarily expensive for a company of this caliber, it does require the software giant to successfully defend its market share against a rising tide of AI-empowered competitors while continuing to grow earnings per share at double-digit rates for the foreseeable future.

Meta’s dominant ecosystem

Meta presents a very different investment case. Rather than selling software, the parent company of Facebook and Instagram monetizes human attention. And the company has locked down an audience of nearly 3.6 billion daily active users across its entrenched social media platforms.

This vast user base acts as an incredible moat in the form of a network effect that is arguably more powerful with each additional user.

A case can be made that instead of threatening this core business, artificial intelligence actively strengthens it. Meta uses complex machine learning models to surface more relevant videos and posts to users, which naturally increases engagement. And better engagement leads to more ad impressions.

And Meta’s financial results prove this strategy is working. In its most recently reported quarter, Meta’s revenue surged nearly 24% year over year to nearly $60 billion.

With this said, Meta is also spending big on capital expenditures to pursue these opportunities. The company expects total 2026 capital expenditures, excluding principal payments on finance leases, to be between $115 billion and $135 billion.

But Meta CEO Mark Zuckerberg is bullish on the opportunity, and seems optimistic that these big investments will be worthwhile over the long haul.

“This is going to be a big year for delivering personal superintelligence, accelerating our business, building infrastructure for the future, and shaping how our company will work going forward,” Zuckerberg explained during the company’s fourth-quarter earnings call.

What about Meta stock’s valuation?

Meta stock trades at a price-to-earnings ratio of about 29. While this represents a slight premium to Microsoft, it is an attractive valuation for a business with 3.6 daily active users, significant opportunities in AI, and a growing top line at nearly a 24% clip.

The verdict

Both of these stocks are high-risk bets. The artificial intelligence landscape is evolving at a breakneck pace. And large capital expenditures from both companies will likely weigh heavily on both companies’ free cash flow.

But if I have to choose between the two ahead of next week’s earnings reports, I believe Meta is the clear winner.

To be fair, this is largely based on my own subjective opinion. It’s my personal belief that Meta’s business model will be easier to defend in the era of AI. And it helps that its top-line growth seems to have more momentum recently, with Meta growing revenue 24% year over year in its most recent quarter and Microsoft growing revenue 17%.

Microsoft relies on selling software in an era where AI is making software easier to build. Meta, on the other hand, dominates the social media space and uses AI to make its existing digital real estate more lucrative. I personally think Meta’s entrenched ecosystem provides a wider margin of safety in this dynamic environment, making it the more attractive stock today.

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Daniel Sparks and his clinets have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, and Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.