The AI craze has returned to Wall Street, and investors are starting to buy again.
Outstanding quarterly results from Microsoft (MSFT) and Alphabet (GOOG, GOOGL) as well as Rubrik's (RBRK) well-received IPO have put the AI narrative back on track, sparking renewed confidence that big tech's expensive bets on… Fun tools promote growth.
Alphabet shares rose to an all-time high on Friday, closing above the $2 trillion market cap for the first time. Microsoft shares rose 1.8%, with the market size reaching more than $3 trillion.
“The AI investment story is sound,” Yong-Yu Ma, US chief investment officer at BMO Wealth Management, told Yahoo Finance.
The outperformance of Microsoft and Alphabet, along with Elon Musk's automaker-turned-AI Tesla (TSLA), pushed the S&P 500 (^GSPC) and Nasdaq (^IXIC) to their best weekly performance of the year.
“They're making profits,” HSBC's Nicole Inouye told Yahoo Finance. “This is a chronic growth story, and we believe the sector will continue to remain strong through the second half of the year.”
The findings from Microsoft and Google gave Wall Street an early glimpse at how artificial intelligence will propel stocks for years to come. Microsoft said artificial intelligence services accounted for 7 percentage points of the 31% revenue jump in its Azure cloud division.
Meanwhile, increased contributions from AI helped Google's cloud revenue increase by 28%, compared to last year.
“The commentary from both Google and Microsoft tells us that there is real demand for AI,” RBC Capital Markets analyst Rishi Galloria told Yahoo Finance. “It's not just hype, it's not just people talking about it. There's actual capital being put to work.”
In a note to clients this week, Bank of America's Michael Hartnett wrote that “narrow mega-cap growth leadership” will remain intact until recession threats materialize.
The AI opportunity goes far beyond Microsoft and Google — the two companies often viewed by Wall Street as leaders in the AI race.
Brad Erickson, an Internet analyst at RBC Capital Markets, told Yahoo Finance that Meta's (META) post-earnings selloff was an “overreaction,” and he believes AI will be a “transformational driver” for the company.
“We're going to buy it,” Erickson said.
The rally in many Mag 7 stocks arrives ahead of key results from Amazon (AMZN) and Apple (AAPL) this coming week — two earnings reports that will be another crucial test for the AI technology trade amid soaring valuations.
Curious about the best Mag 7 name to trade in May amid the acronym's resurgence? In the last episode of Open the bid Podcast, we discuss just that. Tune in below.
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Sina Smith He is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSSmith. Advice on deals, mergers, activist positions, or anything else? Email [email protected].
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