The AI craze has returned to Wall Street – and investors are buying in again.
Stellar quarterly results from Microsoft (MSFT) and Alphabet (GOOG, GOOGL), as well as a well-received IPO debut from Rubrik (RBRK), have put the AI narrative back on track and inspired new confidence that big tech companies’ expensive bets on splashy Tools to drive growth.
Alphabet shares rose to an all-time high on Friday, closing above a market cap of over $2 trillion for the first time. Microsoft shares ended up 1.8%, giving it a market value of just over $3 trillion.
“The AI investing story is intact,” Yung-Yu Ma, chief investment officer of BMO Wealth Management US, told Yahoo Finance.
Outperformance from Microsoft and Alphabet, as well as Elon Musk’s automaker Tesla (TSLA), led the S&P 500 (^GSPC) and Nasdaq (^IXIC) to their best weekly performances this year.
“They deliver their returns,” 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.”
Results from Microsoft and Google gave Wall Street its first glimpse of how AI will influence stock prices in the coming years. Microsoft said AI services accounted for 7 percentage points of the 31 percent jump in revenue in its Azure cloud division.
Meanwhile, increasing contributions from AI helped Google’s cloud revenue rise 28% year over year.
“The commentary from Google and Microsoft shows us that there is real demand for AI,” Rishi Jaluria, an analyst at RBC Capital Markets, told Yahoo Finance. “It’s not just hype, it’s not just people talking about it. Real capital is being deployed.”
In a note to clients this week, Bank of America’s Michael Hartnett wrote that mega-caps’ “limited growth leadership” will remain intact until the threat of a recession materializes.
And the AI opportunity extends 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 selloff was an “overreaction” and believes AI will be a “transformational driver” for the company.
“We would buy it,” Erickson said.
The rally in 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 given sky-high valuations.
Curious about the best Mag 7 name to trade in May given the acronym’s comeback? In the latest episode of the 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 deals, mergers, activist situations, or anything else? Email [email protected].
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