Zacks Investment Ideas feature highlights: Microsoft and Meta Platforms

For Immediate ReleaseChicago, IL – January 31, 2025– Today, Zacks Investment Ideas feature highlights Microsoft MSFT and Meta Platforms META.Microsoft & Meta Earnings: Are DeepSeek Assumptions Premature?DeepSeek news earlier in the week spooked many investors in the AI trade, with many related stocks taking nosedives as a result.DeepSeek is a Chinese artificial intelligence startup that develops open-source large language models (LLM). It recently introduced its R1 model, which rivals leading AI systems like OpenAI's ChatGPT but was developed at a fraction of the cost.The news has caused many to question the steep capital expenditures of titans like Microsoft and Meta Platforms, both of which have committed huge amounts of capital geared around their AI infrastructure buildouts.Nonetheless, as polarizing as the news may be, it'll be crucial to wait and see how the market absorbs the shockwave in the coming weeks. Fortunately, we heard from both Meta Platforms and Microsoft last night.Let's take a closer look at the results and any commentary surrounding DeepSeek.Microsoft Embraces DeepSeekConcerning headline figures in its release, Microsoft posted adjusted EPS of $3.23 and sales of $69.6 billion, reflecting growth rates of 10% and 12%, respectively. Both items exceeded our consensus expectations.As usual, Microsoft's Intelligent Cloud results were an important focus point in the release, including the Azure cloud computing platform. Intelligent Cloud revenue of $25.5 billion reflected a 19% move higher from the year-ago period.In the earnings call, CEO Satya Nadella was asked about DeepSeek, stating, 'I think DeepSeek has had some real innovations.' He continued –'And so, therefore, for a hyperscaler like us, a PC platform provider like us, this is all good news as far as I'm concerned.'In fact, Microsoft stated yesterday that DeepSeek R1 is now available in the model catalog on Azure AI Foundry and GitHub, joining a diverse portfolio of over 1,800 models, including frontier, open-source, industry-specific, and task-based AI models.Perhaps most importantly, the company maintained its CapEx outlook for the coming periods, expecting similar levels to its Q2 ($22.6 billion) to continue fueling its AI infrastructure buildout. Shares demand a premium given investors' growth expectations, with the current 31.7X forward 12-month earnings multiple above the five-year median and reflecting a 41% premium relative to the S&P 500.Earnings are forecasted to climb 9% on 13% higher sales in its current fiscal year (ends in June).Meta Maintains CapEx OutlookConcerning headline figures in its release, Meta Platforms posted adjusted EPS of $8.02 and sales of $48.4 billion, reflecting growth rates of 50% and 21%, respectively. Both items exceeded our consensus expectations, with the growth rates notably strong.Importantly, the company's ad business continued to perform at a high level, with revenue of $46.8 billion again exceeding our consensus estimate.Mark Zuckerberg, asked about DeepSeek, had a very grounded take, stating, 'I think there's a number of novel things that they did that I think we're still digesting. And there are a number of things that they have advances that we will hope to implement in our systems. And that's part of the nature of how this works, whether it's a Chinese competitor or not.I kind of expect that every new company that has an advance -- that has a launch is going to have some new advances that the rest of the field learns from. And that's sort of how the technology industry goes.I don't know -- it's probably too early to really have a strong opinion on what this means for the trajectory around infrastructure and CapEx and things like that. There are a bunch of trends that are happening here all at once.'META's valuation is more tolerable than that of MSFT, with the current 25.9X forward 12-month earnings multiple reflecting a 16% premium relative to the S&P 500 and modestly above the five-year median. EPS is forecasted to climb 6.6% on 13% higher sales in its current fiscal year (end in Dec.).Bottom LineWhile the DeepSeek news has startled the AI trade, hearing from Mag 7 members like Microsoft and Meta provided a fraction of visibility.Both companies maintained their CapEx outlooks and tipped their cap to DeepSeek, easing some fears about the AI infrastructure buildout overall. Still, it'll be some time before we get a true grasp on the situation, and investors should wait on official statements from companies before getting spooked by headlines.Why Haven't You Looked at Zacks' Top Stocks?Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.Today you can access their live picks without cost or obligation.See Stocks Free >>Media ContactZacks Investment Research800-767-3771 ext. 9339support@zacks.comhttps://www.zacks.comPast performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.Zacks' Research Chief Names "Stock Most Likely to Double"Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.This top pick is among the most innovative financial firms. With a fast-growing customer base (already 50+ million) and a diverse set of cutting edge solutions, this stock is poised for big gains. 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