On July 30, the three major US stock indices on the New York Stock Exchange all closed higher.
Driven by strong earnings results, shares of Microsoft surged 16% in a single day, adding $450 billion to its market capitalization. This set a new record for the largest single-day market value increase in US corporate history. The rally significantly eased market concerns about heavy spending on artificial intelligence and led the broad recovery of US stocks. At the close, the Nasdaq Composite Index rose 2.8%, the S&P 500 advanced 1.7%, and the Dow Jones Industrial Average gained 1.2% (614 points). Notably, Microsoft alone contributed roughly 360 points to the Dow's rise.
Buoyed by Microsoft's capital expenditure expansion and positive outlook, previously pressured US chip stocks rebounded collectively. Nvidia and Broadcom shares both climbed higher, while Micron, SanDisk, Western Digital, and Intel all posted double-digit gains. Additionally, technology stocks such as Amazon and Oracle also saw price increases.
In stark contrast to Microsoft, shares of Meta Platforms, Inc. plunged 8% on the same day, extending its losing streak to a record 11 consecutive trading sessions. The company had previously forecast that its free cash flow would turn negative for the first time since its 2012 listing in the second half of this year, triggering a sell-off.
On the macroeconomic front, Federal Reserve Chairman Kevin Warsh had signaled a reluctance to raise interest rates the day before, which initially sparked a broad sell-off in both US stocks and bonds. However, Microsoft's strong earnings outlook ultimately reversed market sentiment, providing a temporary reprieve from selling pressure exerted by retail investors and the hedge fund "Situational Awareness," which had been aggressively offloading tech stocks.
Wall Street remains focused on whether the hundreds of billions of dollars US tech giants invest annually in AI can translate into tangible returns. Goldman Sachs recently forecast that, excluding data center deals, major US tech companies will issue around $250 billion in debt for capital expenditures this year, with that figure expected to rise to $400 billion by 2027. Among the five largest tech companies, Microsoft has a relatively lower reliance on debt financing, generating $19.6 billion in free cash flow last quarter, compared to less than $800 million from Meta Platforms, Inc.
Several financial institution leaders have offered their assessments of the current tech stock trends and AI investment returns. Jack Ablin, founding partner at Cresset Capital, pointed out that the market recognizes that unchecked spending trends are unsustainable, and companies must begin to demonstrate substantive revenue growth. Trevor Slaven, global head of asset allocation at Barings, noted that Microsoft's performance has temporarily dispelled AI-related worries, but intense competition in the sector will inevitably lead to excessive corporate spending in the long run. Richard Bernstein, global director of macro investing at Janus Henderson, emphasized that as the era of cheap capital ends, investors are gradually abandoning speculative fervor and returning to a focus on company fundamentals.
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