Meta Retains Optimism Amid Tech Rout, Signaling Faith in AI Strategy

Despite broader concerns over AI spending leading to a trillion-dollar loss in tech stocks, Meta Platforms Inc. defied the trend, reaching a record high. This suggests that investors remain confident in the company's AI plans while rival Microsoft faces scrutiny.

Comparative Performance

Meta's recent strength contrasts with Microsoft, whose shares have faltered due to heavy AI investments, including its stake in OpenAI. The companies report earnings on Wednesday, with their respective AI strategies under the spotlight.

Meta's Open-Source Strategy Validated

Gene Munster, co-founder of Deepwater Asset Management, believes Meta holds a more favorable long-term position in AI than Microsoft, and the success of DeepSeek validates its open-source strategy. He views Meta's AI model, Llama, as a potential "DeepSeek of the West."

Investors Embrace Meta's AI Spending

Investors have welcomed Meta's AI investment due to its potential to enhance engagement and advertising. In contrast, Microsoft's AI trajectory appears less clear, and the impact of its spending may be less immediate.

Meta Outperforming Microsoft

Meta shares have outperformed Microsoft in recent months, rising 14% in 2025. The company's recent spending announcement of $65 billion on AI projects in 2025 exceeded expectations. Microsoft, however, plans to invest $80 billion this fiscal year.

Microsoft's Challenges

Microsoft's previous earnings reports have disappointed, and its AI spending has been questioned, especially given the limited traction of its AI services. Meta, on the other hand, reported AI's positive impact on various aspects of its operations, reinforcing the belief that its spending signifies confidence in its strategy.

Meta's Valuation Advantage

Despite Meta's stock surge, its relatively cheap valuation could mitigate downside risk. Microsoft trades at a premium to the Nasdaq 100, while Meta's forward PE ratio is below its 10-year average and is the cheapest among mega-cap stocks apart from Alphabet Inc.

DeepSeek's Impact on AI Narrative

The emergence of DeepSeek, a Chinese AI startup, has raised concerns about potential technological breakthroughs by China and the implications for Western AI companies. This could potentially alter the landscape of AI spending efficiency.

Tech Chart of the Day: Nvidia's Plunge

Nvidia's shares fell 17% on Monday, erasing over $590 billion in market capitalization. This marked the largest one-day value loss in market history. The selloff stemmed from fears related to DeepSeek, despite Nvidia downplaying the concerns.

Key Points

* Meta's record high signals investor confidence in its AI strategy amidst tech sector concerns.
* Microsoft's AI spending is under scrutiny, while Meta's is seen as a sign of faith.
* DeepSeek's success highlights China's potential for technological advancements in AI.
* Meta's open-source AI strategy and cheap valuation offer advantages.
* Nvidia's sharp decline underscores the volatility in AI-related stocks.