Microsoft and Meta reported strong quarterly results on Wednesday, easing concerns that progress in artificial intelligence (AI) would slow amid economic turmoil. Meta CEO Mark Zuckerberg stated during an earnings call that the business is “well positioned to navigate the macroeconomic uncertainty.” Microsoft executives noted they expect capital expenditures to rise as they continue to expand data center capacity, highlighting that “cloud and AI are the essential inputs for every business to expand output, reduce costs and accelerate growth.” The favorable earnings reports sent Microsoft shares up 7.6% and Meta shares advanced 4.2%. Information technology outperformed the other 10 sectors in the S&P 500, rising more than 2%.
Portfolio manager Jed Ellerbroek at Argent Capital Management said, “Few stocks are truly immune to tariffs and trade wars, but AI is a lot less impacted than investors currently believe. We’re early in a very steep growth curve right now, and that goes for AI infrastructure.”
However, softening economic data showed an increase in unemployment claims to 241,000, topping the Dow Jones estimate of 225,000 and tempering Thursday’s bullishness. The result added to economic concerns after a disappointing gross domestic product report for the first quarter indicated GDP had fallen at an annualized pace of 0.3%.
Wall Street is keenly observing earnings reports due after Thursday’s close, especially following strong results from peer tech hyperscalers on Wednesday that sparked a tech rally. Apple’s sales, earnings, and product prices are in focus, particularly given U.S.-China trade tensions, as the company earns about three-quarters of its revenue from physical products made primarily in China.
Strong AI fuels market optimism
Analysts are also scrutinizing Amazon’s retail business margins and sales, as well as its cloud computing business and investments in AI. CFRA Research’s Sam Stovall believes that the market tide might be turning. He said, “We retested the 5,500 level on the S&P 500.
The worst is probably behind us for this correction, and we’re going to climb our way back up to the February 19th high.” Investors are rotating from defensive stocks into sectors that could benefit more from a recovery, such as communication services, consumer discretionary, and technology. UBS investment strategist Justin Waring noted that current investor pessimism might herald better-than-average returns over the next several months. Historically, when investors have been this pessimistic, markets have delivered higher-than-average returns over the following six and twelve months.
In summary, the market kicked off May with gains, spurred by strong tech earnings and investor optimism about AI. Despite some economic headwinds and geopolitical uncertainties, experts believe the conditions are ripe for a market recovery.
