The AI craze is back on Wall Street — and investors are buying back.
Standout quarterly results from Microsoft (MSFT) and Alphabet (GOOG, GOOGL), plus a well-received IPO debut from Rubrik (RBRK), put the AI narrative back on track, sparking renewed confidence that Big Tech’s expensive bets on flashy tools are driving growth.
Alphabet shares hit an all-time high on Friday, closing above a $2 trillion market cap for the first time. Microsoft shares closed up 1.8%, boasting a market worth just over $3 trillion.
“The AI investment story is intact,” Yung-Yu Ma, U.S. chief investment officer at BMO Wealth Management, told Yahoo Finance.
Outperformance from Microsoft and Alphabet, along with Elon Musk’s automaker-turned-AI play Tesla (TSLA), drove the S&P 500 (^GSPC) and Nasdaq (^IXIC) to their best weekly performance this year.
“They are delivering profits,” Nicole Inui of HSBC told Yahoo Finance. “This is a secular growth story and we believe the sector will remain strong through the second half of the year.”
Microsoft and Google’s results gave Wall Street an early look at how AI will drive stocks in the coming years. Microsoft said AI services accounted for 7 percentage points of the 31% increase in revenue for its Azure cloud division.
Meanwhile, increased contributions from AI helped Google’s cloud revenue increase 28%, compared to the previous year.
“Comments from Google and Microsoft tell us 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 is real capital being put into action.”
In a note to clients this week, Bank of America’s Michael Hartnett wrote that mega-caps’ “narrow growth lead” 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 (META)’s post-earnings sell-off was an “overreaction” and believes AI will be a “transformational engine” for the company.
“We would be buying it,” Erickson said.
The rally for several Mag 7 stocks comes ahead of key results from Amazon (AMZN) and Apple (AAPL) next week – two earnings reports that will be another critical test for AI technology trading amid sky-high valuations.
Curious about the best Mag 7 name to trade in May amid the acronym’s return? In the last episode of Opening bid podcast, we discuss exactly this. Tune in below.
Sean Smith is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Tips on business, mergers, activist situations or anything else? Email seanasmith@yahooinc.com.
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