After spending much of the year in the stock market doghouse over fears about their profligate spending on artificial intelligence, the world’s biggest technology companies are suddenly leading the way once again.
The trigger was a pair of earnings reports last week showing that AI-related revenue growth is accelerating for what up until recently were two of the group’s worst performers, Microsoft Corp. and Amazon.com Inc.
Microsoft posted its results after the market closed on July 29, and the stock shot up 16% the next day. Amazon followed on July 30, and its shares leaped 15% in the next session. In the six sessions since July 29, Microsoft shares have soared 28% and Amazon’s have jumped 20%, adding a combined $1.3 trillion in market value.
“These are crazy times,” said Arup Datta, portfolio manager at Mackenzie Investments, which owns shares of both companies. “Markets are very manic on the up and on the down. You know, things move fast and sometimes overshoot.”
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To get a sense of the magnitude of the reversal, consider that heading into Microsoft’s earnings report its stock had lost 19% for the year and was the biggest point drag on the S&P 500 Index. It’s now up 3.4% this year and among the 20 biggest point contributors to the broad equities benchmark, which hit a new all-time high this week in a push that was heavily driven by Microsoft’s strength.
Meanwhile, Amazon had been lagging behind the S&P 500 for most of the year, but its stock is now up 18% in 2026 and the fifth-biggest point contributor to the index’s advance.
Just two weeks ago, a strong quarter from Alphabet’s cloud-computing business was overshadowed by higher capital spending plans and disappearing free cash flow. The stock fell 7.1% the day after those earnings, but it then proceeded to rally back to the highest since June before this week’s reports of the departure of more AI veterans revived concerns about a brain drain at Google’s parent, sending the shares sliding again.
“There’s just a growing acceptance of the fact that these guys know what they’re doing,” said Tom Plumb, president and portfolio manager at Wisconsin Capital Management, which owns shares of Microsoft, Amazon and Alphabet. “I think people started to say, okay, Google or Alphabet and Microsoft may for the first time in multiple years be actually looking at negative cash flow because of the capital investment, but the return on that investment that they see more than justifies it.”
The about face in sentiment was surely aided by an improving macroeconomic backdrop, as optimism about the reopening of the Strait of Hormuz sent oil prices lower. That narrative took a hit on Thursday when Iran said it had reached an agreement in principle with Oman to reopen the strait, but not for ships from the US and Israel, sending oil prices higher and the S&P 500 into the red.
However, another big factor was how sour investors had become about AI spending that is siphoning off free cash flows at some of the world’s most profitable companies and transforming their business models. That was compounded by forced selling in AI-related stocks at Leopold Aschenbrenner’s highly levered Situational Awareness fund. All of which left the tech-heavy Nasdaq 100 Index down 11% from a June peak through July 29, setting the stage for a rebound.
“The Situational Awareness thing was obviously a short-term clearing event,” said Michael O’Rourke, chief market strategist at Jonestrading. “The other aspect as far as the catalyst was the Microsoft and Amazon earnings — it was all about their cloud revenue growth meeting expectations.”
The results showed that spending isn’t going away any time soon, but they did reveal that the outlays are driving better-than-expected revenue growth for cloud-computing businesses. Microsoft’s Azure cloud sales rose 43% in its fiscal fourth quarter, the fastest pace since early 2022. Meanwhile, Amazon’s cloud business, Amazon Web Services, posted a 37% jump in second-quarter revenue, its fifth-straight quarter of accelerating sales growth.
“The negatives going into these earnings reports are still pretty much out there and aren’t resolved,” O’Rourke said. “The difference is some of the spending was justified by the cloud revenue.”
An additional factor in the bounce was how beaten down valuations had become. Prior to their earnings, Microsoft and Amazon were trading below 20 times earnings expected over the next 12 months, roughly in line with the S&P 500. Microsoft’s average multiple over the last five years is 28 times estimated profits and Amazon’s is 34 times. Even after the bounce, the Nasdaq 100 is priced at 22 times.
“That’s a relatively cheap multiple for a high-growth sector,” said Ed Yardeni, president and chief investment strategist at Yardeni Research, who sees more gains ahead for tech stocks.
Another good sign for bulls is that investors’ overall exposure to the Magnificent Seven group of tech stocks — which is comprised of Microsoft, Amazon, Alphabet, Apple Inc., Meta Platforms Inc., Nvidia Corp. and Tesla Inc. — remains relatively low, according to prime brokerage data from Goldman Sachs. This suggests there’s plenty of room for more buying.
That being said, there are concerns about the stocks’ abrupt about-face. Traders typically like to see a more orderly march higher to confirm that the pricing will hold. At this point, it still remains to be seen whether Microsoft, Amazon and the rest of the big AI spenders have truly reversed the negative sentiment that has hounded them all year and reclaimed their place as market leaders.
“This is not healthy behavior, it’s more closer to a bear market rally where all the gains are registered in a few days,” O’Rourke said. “I don’t see many people scrambling to buy these megacap names activity-wise. You’re not seeing institutions coming in deciding they need to buy it now. It’s a combination of quants, passive and options speculation. There’s a lot of herding from that retail buyer.”
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