AI confidence returns after Microsoft earnings boost
US markets rebounded strongly on Thursday as investors regained confidence in artificial intelligence spending following Microsoft’s latest earnings report. The software giant’s strong cloud performance and outlook helped ease concerns that massive AI infrastructure investments may not generate sufficient returns.
Microsoft shares surged more than 15%, adding around $450 billion to its market capitalization. The move represented the largest one-day increase in value ever recorded by a publicly traded company on Wall Street.
Azure growth drives investor optimism
The rally followed Microsoft’s announcement that its Azure cloud business delivered stronger-than-expected growth during the quarter. Azure revenue increased 43%, exceeding analyst expectations and reinforcing confidence in demand for AI-related computing capacity.
The company also indicated that its capital investment plans remain under control and that it expects continued cash generation through its 2027 fiscal year, helping reduce concerns about the financial impact of expanding AI infrastructure.
Semiconductor stocks recover after recent pressure
Chipmakers benefited from renewed optimism across the technology sector. The Philadelphia Semiconductor Index climbed 8.2%, supported by major gains from companies involved in AI hardware and memory technology.
Micron Technology advanced 18%, Sandisk jumped 26%, and Advanced Micro Devices gained 13% as investors reassessed concerns over AI valuations and future demand.
Recent market weakness had been driven by questions about whether technology companies were spending too aggressively on AI infrastructure without clear evidence of returns.
Investors reassess AI investment concerns
Concerns around AI spending intensified after several major technology companies reported significant investments in data centers and computing capacity. Reports of weaker cash flow from companies including Alphabet and Tesla contributed to selling pressure across AI-related stocks.
Meta Platforms also faced investor concerns after reporting a sharp decline in quarterly free cash flow, highlighting the financial burden associated with expanding AI capabilities.
Jed Ellerbroek, portfolio manager at Argent Capital Management, said investors are still debating whether the large investments required for AI will ultimately generate sufficient returns.
Microsoft’s results helped strengthen the view that some technology companies may emerge as long-term winners from the AI expansion.
Major indexes close higher
The S&P 500 gained 1.66% to finish at 7,437.63 points. The Nasdaq Composite increased 2.78% to 25,122.18 points, while the Dow Jones Industrial Average rose 1.19% to 52,208.06 points.
Technology stocks led gains among S&P 500 sectors, rising 5.2%, followed by consumer discretionary stocks, which increased 1.6%.
Apple and Amazon prepare for earnings reports
Amazon shares climbed 3.9% ahead of its quarterly results, while Apple declined 1.4% before reporting earnings after the market close.
Apple has benefited from investor demand for companies with more cautious AI spending strategies. The company recently surpassed Nvidia to become the world’s most valuable company, with a market value near $4.9 trillion.
Fed policy remains a market focus
The recovery came after a difficult session on Wednesday, when stocks declined following the Federal Reserve’s decision to keep interest rates unchanged.
Investors continue to assess the future path of monetary policy, with uncertainty surrounding potential rate moves. Market expectations for a September rate increase have fallen, with traders now pricing in a 59% probability compared with 82% a week earlier.
Economic data shows slower US growth
Economic data released Thursday showed that US growth slowed in the second quarter as the trade deficit expanded. The economy grew at an annualized pace of 1.5%, below forecasts of 2.1%.
Another report showed inflation eased in June, providing additional information for investors evaluating future Federal Reserve decisions.
Corporate movers include Qualcomm and Starbucks
Qualcomm shares declined 2.6% after the company issued a weaker-than-expected profit outlook and warned that revenue linked to Apple products would decline faster than anticipated.
Fair Isaac shares dropped 17% despite raising its annual guidance, as the updated projections remained below analyst expectations.
Starbucks gained 1.6% after increasing its annual sales and profit forecasts.
Strong earnings support market valuations
Analysts expect S&P 500 companies to report approximately 40% earnings growth for the second quarter compared with the previous year, with AI-related companies contributing significantly to overall gains.
The combination of stronger earnings expectations and recent price declines has left the S&P 500 trading at around 20 times forward earnings, slightly above its 10-year average of 19 times.
