The AI craze has returned to Wall Street — and investors are buying in.
Standout quarterly results from Microsoft (MSFT) and Alphabet (GOOG, GOOGL) put the AI narrative back on track, sparking renewed confidence that big tech’s expensive bets on AI is boosting growth.
Alphabet shares soared to an all-time high on Friday, closing above $2 trillion in market cap for the first time. Microsoft shares ended up 1.8%.
“The AI investment story is intact,” BMO Wealth Management U.S. chief investment officer Yung-Yu Ma told Yahoo Finance.
Outperformance by Microsoft and Alphabet, along with Tesla (TSLA), pushed the S&P 500 (^GSPC) and Nasdaq (^IXIC) to their best weekly performance this year.
“They’re delivering on earnings,” HSBC’s Nicole Inui told Yahoo Finance. “This is a secular growth story, and we think the sector continues to stay strong over the second half of the year.”
Results from Microsoft and Google gave Wall Street an early glimpse at how AI will drive stocks for years to come. Microsoft said AI services accounted for 7 percentage points of the 31% revenue jump in its Azure cloud division.
Meanwhile, increasing contributions from AI helped Google’s cloud revenue surge 28%, compared to a year ago.
“The commentary from both Google and Microsoft tells us that there is real demand for AI,” RBC Capital Markets analyst Rishi Jaluria told Yahoo Finance. “It’s not just hype, it’s not just people talking about it. There’s actual capital being put to work.”
In a note to clients this week, Bank of America’s Michael Hartnett wrote that “narrow mega-cap growth leadership” will remain intact until threats of a recession materialize.
And the AI opportunity goes far beyond Microsoft and Google — the two companies often viewed by Wall Street as leaders in the AI race.
RBC Capital Markets internet analyst Brad Erickson told Yahoo Finance that Meta’s (META) selloff following earnings was an “overreaction,” and believes AI will be a “transformational driver” for the company.
“We’d be buying it,” Erickson said.
The rally in Mag 7 stocks comes ahead of key results from Amazon (AMZN) and Apple (AAPL) this week — two earnings reports that will be another critical test for the tech trade amid sky-high valuations.
Seana Smith is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Tips on deals, mergers, activist situations, or anything else? Email [email protected].
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