The AI boom is back on Wall Street, and investors are buying in.
Outstanding quarterly results from Microsoft (MSFT) and Alphabet (GOOG, GOOGL) put the AI story back on track and sparked new confidence that big tech companies' big bets on AI are driving growth .
Alphabet stock soared to an all-time high on Friday, ending with a market capitalization above $2 trillion for the first time. Microsoft stock closed at 1.8%.
“The story of AI investing remains the same,” Yun Yu Ma, U.S. chief investment officer at BMO Wealth Management, told Yahoo Finance.
The S&P 500 (^GSPC) and Nasdaq (^IXIC) posted their best weekly performance of the year, with outperformance from Microsoft, Alphabet, and Tesla (TSLA).
“They're profitable,” HSBC's Nicole Inui told Yahoo Finance. “This is a long-term growth story and we believe the sector will continue to perform well in the second half of this year.”
Microsoft and Google's results gave Wall Street an early glimpse into how AI could boost stock prices for years to come. Microsoft announced that AI services accounted for 7 percentage points of the 31% revenue increase for its Azure cloud division.
Meanwhile, Google's cloud revenue increased 28% compared to a year ago due to increased contribution from AI.
“Comments from both Google and Microsoft show there is real demand for AI,” RBC Capital Markets analyst Rishi Jallia told Yahoo Finance. “This isn't just hype, it's not just people talking about it. There's real capital being leveraged.”
Bank of America's Michael Hartnett wrote in a note to clients this week that “narrow mega-cap growth leadership” will remain in place until the threat of a recession materializes.
And the AI opportunity extends far beyond Microsoft and Google. These two companies are often seen by Wall Street as leaders in the AI race.
Brad Erickson, an internet analyst at RBC Capital Markets, told Yahoo Finance that the post-earnings sale of META was an “overreaction” and believes AI will be a “transformational force” for the company. He said he is doing so.
“We would buy it,” Erickson said.
Mag7 stock's rise comes ahead of major earnings reports released this week by Amazon (AMZN) and Apple (AAPL). The two earnings reports will be another important test for the tech industry at a time of soaring valuations.
sheena smith Anchor of Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Have a tip about a deal, merger, activist situation, or more? Email seanasmith@yahooinc.com.
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