Microsoft surge revives confidence in AI trade as Wall Street rallies

Stocks on Wall Street roared into life as Microsoft’s better-than-expected earnings from its cloud division revived confidence in the artificial intelligence sector, with Amazon and Apple’s results after the bell the next gauge for investors.

Commerce Department data showed the US economy grew at a slower pace than economists predicted in the June quarter, albeit with much stronger private consumption than anticipated, while European growth beat forecasts and the Bank of England said it wasn’t seeing signs of second-round inflation from the energy shock as it kept its key rate on hold.

Oil prices eased despite the renewed missile strikes between the US and Iran in the Middle East, while Shell reported surging profit in the second quarter as its traders took advantage of the conflict-induced volatility in oil and gas prices.

And Australian and New Zealand markets are poised to end the month on a positive note with futures pointing to a strong start for the ASX, while ANZ’s monthly consumer confidence survey is on the local data radar.

It’s on

Microsoft surged 17% as investors were buoyed by growth in its Azure cloud division, helping allay fears about the AI sector’s investment in infrastructure, shrugging off Meta Platforms’ disappointing result.

Meanwhile, Oracle jumped on the expansion of its Google Gemini AI partnership and Arm Holdings reported rapid growth in its data centre business, while the Wall Street Journal reported Anthropic was in talks to borrow US$15 billion to build a new data centre campus in Texas.

OpenAI cut prices for its low- and mid-tier AI models as competition mounts from cheaper Chinese models gaining traction among US companies.

And multi-strategy hedge fund Citadel bought AI-focused hedge fund Situational Awareness – which holds an Anthropic stake – after the recent slump in tech companies removed the threat that the investment firm would have to dump holdings to meet margin-call demands from its lenders.

“Investors shrugged off yesterday's late-session bond-driven sell-off, returning to technology stocks after Microsoft delivered a standout earnings report,” Moomoo market strategy consultant Greg Boland said in a note. “Attention now turns to Apple and Amazon, which report after the US close and will provide the next major test of whether the AI investment cycle can continue to support elevated market valuations.”

The Dow Jones Industrial Average climbed 1.2% in late trading, with Microsoft, Amazon and Goldman Sachs leading the blue-chip index higher, while the S&P 500 gained 1.6% and the tech-heavy Nasdaq Composite surged 2.7%.

No time to relax

Tourism and accommodation earnings were mixed as MGM Resorts advanced after beating earnings expectations on strength in bookings at its Las Vegas Strip resorts, while Hyatt Hotels dropped as the Middle East conflict and unrest in Mexico weighed on its bookings and Norwegian Cruise Line sank after dialling back its expectations for the rest of the year.

Mastercard reported increased profit in the second quarter and Starbucks and Chipotle Mexican Grill both raised their guidance on stronger-than-expected results.

The US economy’s 1.5% growth in the June quarter fell short of economists’ forecasts, with net exports and inventories holding back expansion, while private consumption was much stronger than anticipated, growing 3.2%.

Across the Atlantic, the Bank of England kept its key rate at 3.75%, as expected, with a minority of members voting for a quarter-point hike. The statement acknowledged the risk of second-round inflation effects from the energy shock, but hadn’t seen any evidence of it occurring.

Brent crude oil futures for September slipped 1.9% to US$88.99 a barrel.

Meanwhile, Eurozone growth of 0.4% in the June quarter beat expectations.

The UK’s FTSE 100 fell 0.1%, while Germany’s DAX climbed 0.6% and France’s CAC 40 advanced 0.9%.

And the yen surged against the greenback, stoking speculation that Japanese officials had intervened in the currency market. The kiwi dropped to 93.51 yen at 7am in Auckland from 94.93 yen yesterday, and jumped to 58.81 US cents from 58.06 cents.

Australian futures are pointing to a 1.1% gain for the S&P/ASX 200 index when trading opens across the Tasman in the final day of trading for the month. The S&P/NZX 50 index has gained 1% so far this month, while the ASX 200 is up 2.2%.

Local data today include the ANZ-Roy Morgan consumer confidence survey, while the Bank of Japan is expected to keep its benchmark rate unchanged at today’s policy announcement.

Reporting by Paul McBeth. Image from Simon Ray on Unsplash.