Wall Street Ends Lower Despite Strong Microsoft and Meta Earnings

Indexes Reverse Gains Amid Profit-Taking

Despite upbeat earnings from tech giants Microsoft and Meta, all three major U.S. stock indexes closed in negative territory. The initial rally, sparked by stronger-than-expected results, quickly faded as investors rushed to lock in profits—especially after Microsoft’s market capitalization briefly crossed the $4 trillion mark during trading.

Risk-off sentiment was also fueled by former President Donald Trump’s newly issued executive order pressuring major pharmaceutical companies to cut drug prices.

At the close of trading on July 31 (Eastern Time), the Dow Jones Industrial Average had fallen 330.30 points (0.74%) to end at 44,130.98. The S&P 500 dropped 23.51 points (0.37%) to finish at 6,339.39, while the Nasdaq Composite slipped 7.23 points (0.03%) to close at 21,122.45.

AI Boom Triggers Sell-Off Instead of Rally

Ironically, investor excitement surrounding the booming artificial intelligence (AI) sector—spearheaded by Microsoft and Meta—appears to have sparked profit-taking. Microsoft saw its market cap surge past the $4 trillion threshold for the first time during intraday trading, becoming the second company in history after Nvidia to hit that milestone. The company’s stock jumped as much as 8.22% during the session before ending with a more modest 3.93% gain as traders took profits.

Meta Platforms also saw its stock surge, gaining 11.25% on the day. The strong momentum came on the back of a second-quarter earnings surprise and a raised outlook for full-year capital expenditures. Investors were encouraged by Meta’s continued investment in AI infrastructure, alongside better-than-expected operating margins.

Broad Tech Weakness Overshadows Strong Leaders

Despite Microsoft and Meta’s strong performances, the broader market trended downward. Many semiconductor and AI-related firms reported disappointing results, dragging down the overall sector. The Philadelphia Semiconductor Index plummeted over 3%, with 29 out of its 30 components ending lower.

Among the hardest-hit was Arm Holdings, which tumbled 13.44%. The company’s second-quarter earnings failed to beat expectations, and its revenue forecast closely matched market estimates, offering little room for optimism. The weakness in Arm led to declines in other major chipmakers including AMD, ASML, and Qualcomm.

Meta’s Q2 Report Highlights Strong Growth Across Regions

According to Korea Investment & Securities, Meta’s revenue for Q2 2025 came in at $47.5 billion, marking a 21.6% year-over-year increase. Operating profit rose to $20.4 billion—up 37.7%—beating market expectations on both fronts.

This performance marks a return to strong growth after a slower Q1. U.S. ad revenue rose to $20 billion, up 20.8% year-over-year, with slight growth over the previous quarter. In Europe and Asia, revenue hit $11.4 billion (+24.4% YoY, +19.3% QoQ) and $9.1 billion (+18.5% YoY, +11.2% QoQ) respectively—showing improved momentum compared to Q1.

Rising Costs, Record R&D Investment

Total operating expenses rose 11.8% to $27.1 billion, with R&D expenses jumping 22.8% to $12.9 billion—hitting a record high. This reflects Meta’s aggressive push to maintain leadership in AI development and ad technology.

Korea Investment & Securities analyst Jung Ho-yoon noted that AI-driven ad performance continues to improve, with the average cost per ad rising 9% and impressions up 11% in Q2. Facebook and Instagram saw conversion rates increase by 3% and 5%, respectively, thanks to enhanced AI-powered recommendation systems. User engagement also grew, with time spent on both platforms increasing by 5% and 6%.

Outlook: Continued AI Investment and Ad Growth

Meta has slightly raised its 2025 capital expenditure forecast from $64–72 billion to $66–72 billion and expects a similar spending trend in 2026. For Q3, Meta is guiding for revenue between $47.5 billion and $50.5 billion—a 17.0% to 24.4% increase from the same period last year.

Analysts anticipate continued growth in ad exposure, driven by improvements in ad efficiency, pricing, and engagement. “Meta has emerged as the company most effectively integrating AI into its advertising business,” Jung added. “We expect its upward momentum to continue into the third quarter.”