The AI craze has returned to Wall Street – and investors are buying into it.
Noteworthy quarterly results from Microsoft (MSFT) and Alphabet (GOOG, GOOGL) have put the AI narrative back on track, sparking renewed confidence that big tech’s costly bets on AI are driving growth. growth.
Alphabet shares hit an all-time high Friday, closing above $2 trillion in market capitalization for the first time. Microsoft shares ended up 1.8%.
“The AI investment story is intact,” Yung-Yu Ma, chief investment officer of BMO Wealth Management in the United States, told Yahoo Finance.
The outperformance of Microsoft and Alphabet, as well as Tesla (TSLA), pushed the S&P 500 (^GSPC) and Nasdaq (^IXIC) to their best weekly performance this year.
“They are generating profits,” HSBC’s Nicole Inui told Yahoo Finance. “This is a long-term growth story, and we believe the sector will continue to remain strong in the second half of the year. »
The results from Microsoft and Google gave Wall Street its first glimpse of how AI will drive stocks in the years to come. Microsoft said AI services accounted for 7 percentage points of the 31% revenue increase in its Azure cloud division.
Meanwhile, AI’s growing contributions helped Google’s cloud revenue grow 28% year-over-year.
“The feedback from Google and Microsoft tells 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 that is put to good use.
In a note to clients this week, Bank of America’s Michael Hartnett wrote that “mega-cap growth’s tight leadership” will remain intact until recession threats materialize.
And the opportunities in AI go far beyond Microsoft and Google – the two companies often considered by Wall Street to be leaders in the AI race.
RBC Capital Markets Internet analyst Brad Erickson told Yahoo Finance that Meta’s (META) post-earnings selloff was an “overreaction” and believes AI will be a “transformation engine” for the business.
“We would buy it,” Erickson said.
The Mag 7 stock rally comes ahead of key results from Amazon (AMZN) and Apple (AAPL) this week – two earnings reports that will provide another critical test for tech trading amid sky-high valuations.
Sean Smith is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Advice on deals, mergers, activist situations or anything else? Email [email protected].
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