Wall Street Rebounds as Microsoft Gains Lift AI and Chip Stocks Higher

US stocks opened higher on Thursday as Microsoft’s strong results eased concerns over heavy artificial intelligence spending. Technology shares led the recovery after a sharp selloff in the previous session.

The Dow Jones Industrial Average rose 1.01% at the open. The S&P 500 gained 1.02%, while the NASDAQ Composite climbed 1.67%. Later, the NASDAQ advanced about 2% as Microsoft and semiconductor shares extended gains.

Microsoft Leads Technology Stock Recovery

Microsoft shares jumped about 15% after the company reported stronger earnings and revenue. Growth in its Azure cloud business supported confidence that its large AI investments could produce higher returns.

Semiconductor stocks also rallied. The iShares Semiconductor ETF rose more than 7%, helping technology become the strongest S&P 500 sector. Consumer discretionary stocks also gained.

Meta Platforms moved in the opposite direction and fell about 8%. The company issued a softer revenue forecast and reported a sharp decline in second-quarter free cash flow. It also raised expected AI infrastructure spending.

Stephen Evans, Chief Investment Officer at Pave Finance, called the market reaction “a tale of two AI investment strategies.” He said one company increased profits while spending heavily, while another allowed costs to reduce earnings.

Economic Growth Slows in Second Quarter

Fresh data showed the US economy expanded at a slower pace. Gross domestic product increased at a 1.5% annual rate during the second quarter, below estimates near 2%.

The reading followed 2.1% growth in the first quarter. Slower expansion added pressure as investors watched high borrowing costs, softer business activity, and changing consumer demand.

Jobless claims reached 197,000 for the week ended July 25. The total came below the expected 200,000, though it increased by 9,000 from the prior week’s revised level.

The labor data showed layoffs stayed limited despite weaker growth. Investors continued to assess whether slower output could affect hiring, wages, and household spending.

Inflation Keeps Federal Reserve Policy in Focus

Additionally, the Personal Consumption Expenditures price index fell 0.1% in June. The annual inflation rate stood at 3.7%, matching expectations but staying above the Federal Reserve’s 2% target.

Core PCE, which excludes food and energy, rose 0.1% during the month. The annual core reading reached 3.3%. Economists had expected a 0.2% monthly increase and the same yearly rate.

The data arrived one day after the Federal Reserve kept interest rates unchanged. Investors reviewed whether slower growth and persistent inflation could shape the central bank’s September decision.

Sameer Samana of Wells Fargo Investment Institute said the Fed ‘remains patient’ and continues to watch economic conditions. He added that September remains open for action if incoming data supports a policy change.

Market Breadth Stays Narrow Despite Rally

However, the rebound did not reach every part of the market. Shortly after the open, only 243 companies in the S&P 500 traded higher. Five of its 11 sectors posted gains.

Technology shares rose about 4%, while consumer discretionary stocks gained roughly 1.3%. The narrow participation showed that a small group of large companies drove much of the advance.

Bond yields also stayed in focus after the Fed decision. The 30-year Treasury yield held near levels last seen in 2007 after moving above 5.2%. Other yields changed little.

Wall Street was recovering from Wednesday’s losses. The Dow had fallen more than 1,100 points, while the NASDAQ 100 entered correction territory. Amazon, Apple, and Coinbase were due to report after Thursday’s close.

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