Wall St advances as Microsoft results ease AI spending fears

NEW YORK: US stocks gained on Thursday as Microsoft’s stellar forecasts soothed concerns about massive AI spending by companies, while investors also parsed fresh GDP and inflation data a day after the Federal Reserve’s rate decision.

Microsoft jumped around 14 percent after the company forecast current-quarter sales and cloud growth above expectations, capital expenditure below estimates and said it expects to keep generating cash through its fiscal 2027 that just began.

Investors have been spooked by rising AI costs at big technology firms even as they report strong earnings. Negative cash-flow reports from Alphabet and Tesla last week sparked a bout of selling in AI-linked stocks, with chip stocks also coming under pressure as investors questioned high valuations. The tech-heavy Nasdaq-100 dropped 10 percent from its early June peak on Wednesday.

In a sign that AI concerns were far from over, Meta Platforms shed 9 percent, as the social media giant reported a 91 percent drop in second-quarter free cash flow, underscoring the financial strain of its costly AI buildout.

The real question is not whether AI creates value — it is who can stay at the very top of the capability race, said Laurent Clavel, global head of multi-asset at AXA IM.

Apple and Amazon are scheduled to report earnings after the bell. Amazon was up 4.4 percent, while Apple was down 2 percent.

On the data front, US economic growth slowed in the second quarter amid a widening in the trade deficit, increasing at a 1.5 percent rate versus estimates of 2.1 percent growth. A separate reading also showed US inflation slowed in June.

At 11:30 a.m. ET, the Dow Jones Industrial Average rose 125.92 points, or 0.25 percent, to 51,723.73, the S&P 500 gained 56.84 points, or 0.78 percent, to 7,372.99, and the Nasdaq Composite gained 475.49 points, or 1.95 percent, to 24,919.96.

Eight of the 11 S&P sectors were trading lower, though technology’s 4.2 percent jump offset weakness in the broader index.

Chip stocks soared, with the Philadelphia chips index up 7.3 percent and set to snap a five-day losing streak.

Markets closed sharply lower on Wednesday after the Fed left interest rates unchanged in the 3.50 percent to 3.75 percent range, but mixed messages from new Fed Chair Kevin Warsh left traders confused about the path of borrowing costs.