Microsoft sparks AI-driven rally
Wall Street has ended sharply higher, with chip stocks jumping and Microsoft logging its biggest daily percentage gain in 18 years after the technology giant gave a stellar forecast that eased fears about massive spending on AI infrastructure.
Microsoft jumped more than 15 per cent, boosting its stock market value by $US450 billion ($A640 billion), the greatest-ever single-day increase for a company on Wall Street.
The tech heavyweight forecast quarterly sales and cloud growth above expectations.
It also reported capital expenditures below estimates and said it expects to keep generating cash through its fiscal 2027 that has just begun.
Chipmakers rebound despite mixed AI outlook
This year, investors have been spooked by heavy spending on AI at big technology firms.
Negative cash-flow reports from Alphabet and Tesla last week sparked a bout of selling in AI-linked stocks, with chip stocks also under pressure as investors questioned high valuations.
Meta Platforms tumbled after the social media heavyweight reported a 91 per cent drop in second-quarter free cash flow, indicating the financial strain of its costly AI buildout.
The PHLX chip index surged 8.2 per cent, with Micron Technology jumping 18 per cent, Sandisk soaring 26 per cent and Advanced Micro Devices up 13 per cent.
Amazon rose 3.9 per cent and Apple dipped 1.4 per cent, with both companies set to report their results after the market closes.
Amazon's stock has underperformed the broader market this year due to concerns about heavy spending on AI.
Apple, which has not spent heavily on AI, recently overtook Nvidia to become the world's most valuable company, with a market value of about $US4.9 trillion.
The S&P 500 climbed 1.66 per cent to end the session at 7,437.63 points, the Nasdaq gained 2.78 per cent to 25,122.18 points and the Dow Jones Industrial Average rose 1.19 per cent to 52,208.06 points.
Seven of the 11 S&P 500 sector indices rose, led by technology, up 5.2 per cent, followed by a 1.6 per cent gain in consumer discretionary.
Rate expectations shift after Fed meeting
On Wednesday, US stocks closed sharply lower after the Federal Reserve left interest rates unchanged, with mixed messages from new Fed chair Kevin Warsh leaving traders confused about the path of borrowing costs.
Bond markets remained on edge, with the yield on the 30-year Treasury bond surging to its highest level in 19 years.
Traders are now only pricing in a 59 per cent chance for a rate hike at the Fed's September meeting, according to CME FedWatch, down from 82 per cent a week ago.
US economic growth slowed in the second quarter as the trade deficit widened.
The economy grew at a 1.5 per cent rate, slower than estimates of 2.1 per cent growth, data showed.
A separate reading also showed US inflation slowed in June.
Strong earnings forecasts and a recent decline in share prices have left the S&P 500 trading at about 20 times expected earnings, just above its 10-year average of 19, according to LSEG data.
Across the US stock market, advancing stocks outnumbered falling ones by a 2.2-to-one ratio.
Volume on US exchanges was relatively heavy, with 18.0 billion shares traded compared to an average of 17.2 billion shares over the previous 20 sessions.
