U.S. stocks rebounded sharply on Thursday after Wednesday's steep sell-off, with technology stocks leading the recovery. In some cases, massive AI spending is actually making money.
The Nasdaq Composite (^IXIC +0.91%) soared 2.6% at 12:40 p.m ET, notching its best single-session performance since mid-June. The S&P 500 (^GSPC +0.66%) climbed 1.3%, while the Dow Jones Industrial Average (^DJI +0.61%) gained 0.8%, adding roughly 430 points.
Microsoft just answered the big AI question
Microsoft (MSFT +2.63%) rocketed 16.4% higher after delivering exactly what investors wanted to see: proof that all those billions spent on AI infrastructure are generating real revenue. The software giant reported quarterly sales of $90.0 billion, crushing analyst estimates of $87.6 billion. More importantly, Azure cloud revenue grew 43% in constant currency, exceeding expectations of 40%. Microsoft also noted that Azure topped $100 billion in revenue for fiscal 2026, a milestone that validates the entire AI investment thesis.
Semiconductor stocks celebrated right alongside Microsoft. The iShares Semiconductor ETF (SOXX +1.31%) jumped 8%, erasing the doom and gloom of its 10% weekly decline from Monday through Wednesday. Micron Technology exploded 15.7% higher, SK Hynix ADR climbed 15.3%, Advanced Micro Devices surged 12.7%, and Nvidia (NVDA +1.83%) added 2%.
Microsoft's contribution to the S&P 500 was substantial, with its $555 billion increase in market capitalization accounting for 0.83 percentage points of the index's gain. For the Nasdaq, Microsoft alone contributed 1.01 percentage points to the 2.6% advance. I'd love to figure out the exact impact Microsoft's report had on the overall market today, including the print's inspiration for other tech stocks on the rise, but I'd need a bigger calculator.
NASDAQ Composite Index
Key Data Points
But it wasn't all sunshine and semiconductor rallies. Meta Platforms (META +2.06%) dropped 9.2% after missing earnings expectations by $1.04 per share and issuing third-quarter revenue guidance with a midpoint below analyst expectations. The real concern? Meta's second-quarter free cash flow collapsed 91%, raising uncomfortable questions about whether its AI spending spree is sustainable.
Apple (AAPL -9.42%) declined 1.8% ahead of its after-hours earnings report, while Amazon (AMZN +14.98%) gained 5.3% in anticipation of its results.
On the economic front, the news was mixed. The annual core personal consumption inflation rate held steady at 3.3% in June, matching expectations but still well above the Fed's 2% target. Second-quarter GDP growth came in at 1.5%, missing the 1.8% forecast. Neither data point seemed to matter much, given the day's overwhelming focus on corporate earnings.
Image source: Getty Images.
The bigger picture
Thursday's rally proves that investors aren't actually panicking about Federal Reserve policy or geopolitical tensions; they're worried about whether the AI revolution is real or just expensive hype. Microsoft just provided a definitive answer, showing that its cloud computing revenue is accelerating fast enough to justify massive capital expenditures. Meta's stumble shows what happens when AI spending doesn't immediately translate to profitability.
The contrast between Microsoft and Meta tells the real story of this earnings season. One company is already turning AI investments into revenue growth while maintaining healthy margins. The other is watching costs devour its cash flow, and hasn't even launched an AI compute service like Azure or Amazon Web Services yet.
Apple and Amazon are reporting after the close, so investors will get more data points on which approach is winning. Apple's strategy is comparable to Meta's, while Amazon's is closer to Microsoft's.
For now, the market has spoken: show us the AI revenue, and the rally continues.
