Despite robust quarterly earnings, shares of Microsoft (MSFT) and Meta (META) plunged on Thursday as both tech giants signaled significant future AI spending needs and slower growth prospects. Shares of companies that have become leaders in the AI ​​sector fell despite heavy investments in generative AI that had previously fueled investor optimism.

The downward pressure spread throughout the AI ​​ecosystem, pushing shares of major semiconductor and hardware vendors lower. Nvidia (NVDA) fell 4.5%, Advanced Micro Devices (AMD) fell 2.8%, Micron Technology (MU) slipped 4.4% and Broadcom (AVGO) lost 4.8%. Meanwhile, Super Micro Computer (SMCI) suffered an even steeper decline, falling 15% due to an ongoing dispute with its auditor. The AI ​​hardware company is now facing possible delisting from Nasdaq, further increasing uncertainty for investors.

Microsoft cannot meet AI demand

In Microsoft's (MSFT) third-quarter earnings report on Wednesday evening, the company admitted that it couldn't build data centers fast enough to meet AI needs. “Microsoft's inability to build data centers quickly enough has limited its guidance for the coming quarter,” Richard Windsor, founder of Radio Free Mobile, said in a note.

During a post-earnings call with analysts, Microsoft CEO Satya Nadella said the company encountered external constraints due to high demand for artificial intelligence training and inference.

“(Data centers) aren’t built overnight,” Nadella said. “Even in the second quarter, for example, some of our demand issues or our ability to meet demand are actually due to external equipment that we rent moving up. These are the limitations we have.”

Shares of the tech giant fell over 5% during trading on Thursday, trading at $409 per share. The stock is nearing its worst performance in months after falling nearly 2% over the past three months.

Meta spends a lot on AI

Facebook parent company Meta Platforms (META) has invested billions of dollars in artificial intelligence to keep pace with its Magnificent 7 competitors. The tech giant warned that this spending will only increase next year and beyond.

Chief Executive Mark Zuckerberg gave analysts a hint of what some of those investments might look like in a call Wednesday, but said the company would provide more details once it sets its fourth-quarter budget.

“First, it is clear that there are many new opportunities to leverage new AI advances to accelerate our core business, which should deliver strong ROI over the next few years,” Zuckerberg said. “That’s why I think we should invest more there.”

“And secondly, our AI investments continue to require serious infrastructure, and I expect we will continue to invest significantly there,” he added.

Shares of Meta were down 3.75% on Thursday afternoon.

– Britney Nguyen and Rocio Fabbro contributed to this article

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