U.S. stocks rallied on Thursday as Microsoft’s blockbuster earnings revived confidence in the AI trade. The Nasdaq Composite led the charge, while the S&P 500 and Dow Jones Industrial Average also rebounded following the Federal Reserve’s decision to keep interest rates unchanged.
Microsoft’s sharp gain offset continued weakness in Meta Platforms and helped stabilize technology shares after a difficult stretch for the sector. Even so, rising Treasury yields, renewed U.S. strikes against Iran, and lingering questions about AI spending kept investors cautious.
Market Movers:
- MarketAxess (MKTX) +30%: Shares soared after Intercontinental Exchange agreed to acquire the electronic bond trading platform for $167 per share in cash. The deal values MarketAxess at a significant premium and came alongside quarterly results that topped expectations.
- Microsoft (MSFT) +14%: The software giant surged after reporting stronger-than-expected earnings and accelerating Azure growth. Revenue climbed 18%, Azure surpassed $100 billion in annual sales, and Microsoft 365 Copilot reached more than 30 million paid users.
- Chipotle Mexican Grill (CMG) +13%: Shares rallied after comparable sales exceeded expectations and management raised its full-year outlook. Investors looked past some margin pressure and focused on stronger traffic, pricing, and expansion plans.
- Starbucks (SBUX) +4%: The coffee chain gained after posting another quarter of positive comparable sales and lifting its earnings forecast. Higher transactions, improved margins, and progress in its turnaround strategy supported the move.
- Teladoc Health (TDOC) -23%: Shares plunged after revenue missed expectations and management issued disappointing guidance. Continued weakness at BetterHelp overshadowed an earnings beat.
- Meta Platforms (META) -10%: Shares fell after rising expenses and heavier AI investment weighed on quarterly profits. Meta also raised its capital spending outlook, reviving concerns about how quickly the company can generate returns from its infrastructure buildout.
- Altria (MO) -7%: The tobacco company declined after missing earnings expectations and issuing guidance that came in slightly below consensus.
- Qualcomm (QCOM) -5%: Shares slid after weaker-than-expected guidance overshadowed quarterly revenue strength. Declining handset sales and lower expected Apple modem revenue remained major concerns.
Microsoft Revives the AI Trade
Microsoft delivered the kind of results investors had been demanding from companies spending heavily on artificial intelligence. Azure growth accelerated, cloud revenue exceeded expectations, and demand for Copilot products provided evidence that AI investments are beginning to generate meaningful sales. The contrast with Meta was stark. Meta’s advertising business remained healthy, but a 55% increase in operating expenses and higher guidance for capital spending overshadowed that growth.
The differing reactions showed that investors remain willing to reward AI spending when it produces visible revenue and profit gains. Amazon will face the same test when it reports after Thursday’s close. Wall Street will focus on Amazon Web Services growth, capital expenditures, and whether its AI investments are improving margins or simply increasing costs.
Bond Yields and Geopolitical Risks Remain
The rally came despite another sharp increase in long-term Treasury yields. The 30-year yield climbed near 5.24%, its highest level in decades, after several Federal Reserve officials supported raising interest rates at Wednesday’s meeting. Mortgage rates also reached their highest level in a year, adding pressure to an already strained housing market. Although inflation slowed in June, bond investors remained concerned that the Fed may need to keep monetary policy restrictive. Renewed U.S. attacks on Iranian targets added another source of uncertainty. Oil prices remained relatively stable Thursday, but any escalation that disrupts global energy supplies could quickly revive inflation fears.
Looking Ahead
Attention now shifts to earnings from Amazon and Apple. Amazon’s cloud growth and capital spending plans will offer another major test for the AI trade. At the same time, Apple’s margins will be closely watched as higher memory-chip costs affect the consumer electronics industry. Microsoft’s results provided relief for technology investors, but the broader debate over AI spending remains unresolved. Companies that can demonstrate clear revenue growth and improving returns may continue to outperform, while those relying primarily on long-term promises could face greater scrutiny.
