Last week, the stock performances of tech giants following their earnings reports showed significant divergence, as clear winners and laggards emerged while Wall Street sought definitive signals of return on artificial intelligence investments to judge the market leaders. Meta (META.US) shares surged more than 10% in a single day, with investors applauding its productivity gains and the comprehensive integration of AI technology into its social media apps, advertising and shopping tools, and internal workflows. Concurrently, Tesla (TSLA.US) shares rebounded after a sell-off on Friday, as investors digested Elon Musk's emphasis on the company's transition from an electric vehicle manufacturer to autonomous driving and robotics, alongside the announced massive spending forecast. In contrast, tech behemoth Microsoft (MSFT.US) saw its stock plummet post-earnings, driven by market concerns over slowing growth in its cloud business and massive AI-related expenditures. Cloud software leaders Salesforce (CRM.US) and ServiceNow (NOW.US) also experienced sharp declines as the market worried about AI potentially disrupting the software-as-a-service model. "It all comes down to monetization capability. That's what the market wants to see now," stated Dan Ives, Managing Director and Global Head of Technology Research at Wedbush Securities, on Friday. "I think what you're seeing is a real bifurcation in tech. It's kind of a 'haves versus have-nots,' and that's been the story of this entire tech earnings season," he added.
In recent quarters, the market has remained vigilant about an AI bubble, hoping to see the tens of billions of dollars companies are pouring into AI technology translate into tangible results in their financial performance. "Investors are voting with their feet; they are moving into areas where the growth is more visible and feels more sustainable," said Alex Zukin, Managing Director and Head of Software Research at Wolfe Research. However, Wall Street views the recent sell-off in software stocks as somewhat overdone, noting that the benefits of AI will take longer to materialize. "Enterprise applications involve complexities like data, governance, security, compliance, risk, and we believe some of these trends and themes may take longer to fully play out," he added. "We are still in 'phase zero' of adoption." This analyst sees buying opportunities in data platform company MongoDB (MDB.US), data warehouse provider Snowflake (SNOW.US), observability supplier Datadog (DDOG.US), and communications platform company Twilio (TWLO.US), whose stock prices have all fallen amid the general software sector weakness.
A clear theme is emerging: robust demand for the memory and storage required for AI. SanDisk (SNDK.US) shares soared to a record high on Friday after the company reported a blowout quarterly report and profit forecast, as market focus expands from chips to other parts of the AI infrastructure. The storage product manufacturer's stock has gained over 150% year-to-date, while its peer Micron Technology (MU.US) is up 52% for the year after achieving triple-digit percentage gains in 2025. "This is a super-cycle for memory. That is the reality," said Wedbush Securities' Ives. The growth in memory demand and rising prices did not impact Apple's gross margin in its most recent quarter, although CEO Tim Cook indicated on Apple's earnings call last week that it would have a "slightly larger impact" on gross margin in the second quarter. "We obviously don't provide an outlook beyond this quarter, but we do continue to see market pricing for memory increasing substantially," Cook said. Apple's stock edged higher on Friday.
Despite the divergence, Wall Street continues to view AI and technology as the foundation supporting the broader market's rise, even as other sectors begin to perform better. After the S&P 500 retreated from its record high above 7000 points last week, UBS strategists suggested that investors should maintain equity exposure but focus on broadening their allocations to capture widening investment opportunities and diversify potential risks. "Investors with excessive exposure to tech stocks should consider diversifying into opportunities in expanding U.S. sectors, including the financial sector," the strategists said, adding that healthcare and consumer discretionary sectors might also benefit from affordability initiatives under a potential Trump administration. Energy, materials, and consumer staples have been the strongest-performing sectors year-to-date.
