Buy Meta Platforms or Microsoft Stock After Beating Earnings Expectations?

The Nasdaq has continued to rebound and drift higher after the market received favorable quarterly results and guidance from Meta Platforms META and Microsoft MSFT.

Reporting after-market hours on Thursday, both were able to exceed expectations with Meta and Microsoft’s stock spiking +4% and +7% in today's trading session, respectively.

Meta's Q1 Results

With Meta CEO Mark Zuckerberg stating the company is making good progress on its AI initiatives, the social media giant’s Q1 sales increased 16% year over year to $42.31 billion and topped estimates of $41.23 billion. Q1 highlights included Meta AI users hitting almost a billion monthly active users (MAU), with Daily Active People (DAP) on its Facebook and Instagram platforms increasing 6% to 3.43 billion.

On the bottom line, Meta’s Q1 EPS spiked 36% to $6.43 from $4.71 per share a year ago. Blowing away Q1 earnings expectations of $5.22 a share by 23%, Meta has now exceeded the Zacks EPS Consensus for 10 consecutive quarters.

Microsoft’s Q3 Results

Wall Street especially applauded Microsoft’s results for its fiscal third quarter as the computer software pioneer is crucial to various technology-driven business applications, including cloud and AI expansion. Appeasing analysts, Microsoft’s AI solutions helped its cloud revenue jump 20% to $42.4 billion. Intelligence Cloud contributed to 58% of cloud revenue at $26.75 billion, thanks to Azure, which provides a variety of computing, storage, networking, and AI capabilities. Azure sales expanded 21%, with AI adding to 16 percentage points of its growth.  

Overall, Microsoft’s Q3 sales rose 13% to $70.06 billion and eclipsed estimates of $68.38 billion. More reassuring, Microsoft’s net income spiked 18% to $3.46 per share versus EPS of $2.94 in the comparative quarter. Topping Q1 EPS expectations of $3.20 by 8%, Microsoft has exceeded earnings expectations for 11 consecutive quarters.  

Meta & Microsoft’s Reassuring Revenue Guidance

Reassuringly, Meta projects Q2 revenue at $42.5-$45.5 billion, which came in range of Zacks' estimates of $43.33 billion (Current Qtr below) or 11% growth. Based on Zacks projections, Meta’s total sales are currently expected to rise 12% in fiscal 2025 and are projected to jump another 13% in FY26 to $208.08 billion.

As for Microsoft, it expects its Q4 revenue to be in the range of $73.15-$74.25 billion, topping the current Zacks Consensus of $72.03 billion or 11% growth. Furthermore, Microsoft expects Azure’s Q4 growth rate at 34%-35%. Zacks estimates call for Microsoft’s annual sales to expand by over 12% in FY25 and FY26 with projections edging north of $300 billion.

Monitoring Meta & Microsoft’s P/E Valuation  

With Meta and Microsoft stock edging toward positivity territory for the year, they still offer long-term value to investors at their current levels. Meta sticks out in particular, as its 22.7X forward earnings multiple is the second cheapest forward P/E valuation among the Mag 7, next to Alphabet GOOGL.

That said, at 30.3X forward earnings, Microsoft isn’t at an overly stretched premium to the benchmark S&P 500’s 21.4X and offers a 20% discount to its decade-long high of 38.2X.

Bottom Line

There could certainly be more upside for Meta and Microsoft’s stock following their favorable quarterly results and guidance. For now, both maintain a Zacks Rank #3 (Hold), although buy ratings may be on the way as earnings estimate revisions could trend higher in the coming weeks, given their positive outlook.

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This article originally published on Zacks Investment Research (zacks.com).

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