The S&P 500 rose 1.7% and the Nasdaq gained 2.76% after Microsoft’s stronger-than-expected forecast and capital-spending update eased concerns about the cost of artificial intelligence expansion.
By yourNEWS Media Newsroom
U.S. stocks rebounded sharply Thursday as Microsoft surged 15% and semiconductor shares rallied after the technology company delivered an upbeat sales and cloud-computing forecast that reduced investor concerns about massive spending on artificial intelligence infrastructure.
Microsoft projected quarterly revenue and cloud growth above analysts’ expectations while reporting capital expenditures below estimates. The company also said it expects to continue generating cash throughout its newly begun fiscal 2027.
The update offered reassurance to investors who have grown increasingly concerned about the amount of money major technology companies are committing to AI development and whether those investments will produce sufficient returns.
“Microsoft delivered yesterday, and maybe Microsoft is going to be able to move itself from the ‘battleground’ camp to be a ‘trusted AI winner’ stock,” said Jed Ellerbroek, portfolio manager at Argent Capital Management.
Concerns about AI spending intensified after Alphabet and Tesla reported negative cash flow last week, prompting investors to sell AI-related stocks and putting pressure on chipmakers whose valuations had risen sharply.
Meta Platforms added to those worries after reporting a 91% decline in second-quarter free cash flow, illustrating the financial burden created by its expensive AI infrastructure expansion.
“These are true battleground stocks,” Ellerbroek said.
“Investors can’t make up their minds whether the ROI on the massive capex spending is going to be worthwhile or not,” he added.
The PHLX Semiconductor Index surged Thursday, with Micron Technology, SanDisk and Advanced Micro Devices posting substantial gains.
Amazon shares also advanced, while Apple slipped before both companies were scheduled to report quarterly results after the market closed.
Amazon has underperformed the broader market this year amid concerns about its heavy AI spending. Apple, which has invested less aggressively in AI infrastructure, recently surpassed Nvidia to become the world’s most valuable company, with a market capitalization of approximately $4.9 trillion.
Preliminary closing data showed the S&P 500 gaining 124.60 points, or 1.70%, to finish at 7,440.75. The Nasdaq Composite climbed 679.24 points, or 2.76%, to 25,118.17, while the Dow Jones Industrial Average rose 607.28 points, or 1.18%, to 52,201.42.
Thursday’s rally followed a steep decline in U.S. stocks Wednesday after the Federal Reserve left interest rates unchanged. Mixed signals from new Fed Chairman Kevin Warsh left traders uncertain about the future direction of borrowing costs.
Bond markets remained unsettled, with the yield on the 30-year Treasury reaching its highest level in 19 years.
Traders were pricing in a 59% probability that the Federal Reserve would raise rates at its September meeting, according to CME FedWatch. That was down from an 82% probability one week earlier.
New economic data showed U.S. growth slowing during the second quarter as the trade deficit widened. Gross domestic product expanded at an annual rate of 1.5%, below economists’ forecast of 2.1%.
A separate report showed inflation moderating in June.
Among individual companies, Qualcomm declined after forecasting fourth-quarter earnings below expectations and warning that revenue tied to Apple products would fall more quickly than previously anticipated.
Fair Isaac also dropped. The credit-scoring company raised its annual earnings and revenue projections, but both remained below analysts’ estimates.
Starbucks advanced after the world’s largest coffee chain increased its full-year sales and profit forecasts.
Analysts expect companies in the S&P 500 to report aggregate second-quarter earnings growth of 40% from a year earlier, with AI-related businesses accounting for a large share of that increase, according to LSEG I/B/E/S.
Strong earnings projections, combined with the recent pullback in stock prices, have left the S&P 500 trading at approximately 20 times expected earnings. That remains slightly above its 10-year average multiple of 19, according to LSEG data.
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