AI Trade Roars Back as Microsoft Sparks Powerful Market Rebound

Thursday’s rally was far more than a typical buy-the-dip bounce. It marked a decisive return to the AI trade, with investors rushing back into the sector after blockbuster earnings and upbeat guidance from Microsoft and Lam Research reignited confidence in artificial intelligence spending.

Microsoft stole the spotlight, surging 15.5% after delivering results that reinforced expectations for sustained AI-driven growth. Lam Research added 18.0% following its own impressive earnings report, helping fuel a broad rally across semiconductor stocks and restoring momentum to one of the market’s most closely watched themes.

Another factor that may have contributed to the rebound was a CNBC report that hedge fund Situational Awareness was forced to liquidate its entire portfolio of public investments after suffering steep losses on AI-related positions. Many investors viewed the liquidation as a potential “clearing event,” removing a source of selling pressure that had weighed on the AI trade during recent sessions.

Regardless of the catalyst, there was little doubt about what drove Thursday’s advance. Microsoft and semiconductor stocks powered the market higher.

Microsoft’s outsized gain lifted the Dow Jones Industrial Average, the Nasdaq 100, and the broader technology sector, which surged 5.2%. The Philadelphia Semiconductor Index soared 8.2% as investors aggressively returned to AI infrastructure, chip manufacturing, and semiconductor equipment companies.

The rally overshadowed disappointing earnings reactions elsewhere. Meta Platforms fell 8.0% following its quarterly report, while Qualcomm lost 2.7% and Norwegian Cruise Line declined nearly 10% after their respective earnings releases. Ongoing geopolitical tensions between the United States and Iran also took a back seat as investors focused overwhelmingly on the renewed AI narrative.

Trading was initially concentrated almost entirely within the technology sector, but buying broadened considerably as the session progressed. The afternoon advance spread into economically sensitive sectors, pushing the major indexes to fresh session highs.

Industrials, which had traded in negative territory earlier in the day, finished with a 1.0% gain. Financials recovered to close 0.6% higher, while energy also added 0.6%. Consumer discretionary was another standout performer, climbing 1.6% behind renewed strength in several large-cap growth names.

Not every corner of the market participated in the rally. Communication services fell 2.5%, pressured by Meta’s post-earnings decline, while consumer staples lost 2.2%. Health care slipped 1.7%, and real estate declined 1.2% as investors rotated toward higher-growth sectors.

The fixed-income market also provided a supportive backdrop after Wednesday’s volatility. The 10-year Treasury yield briefly reached 4.71% overnight before easing to 4.66% as oil prices retreated, June’s Personal Consumption Expenditures (PCE) inflation data showed further year-over-year moderation, and second-quarter U.S. GDP grew 1.5%, below economists’ expectations.

Even so, investors continued to debate whether inflation remains too persistent for the Federal Reserve to achieve its 2.0% target. Questions also lingered about the Fed’s inflation-fighting credibility after policymakers chose to leave interest rates unchanged at Wednesday’s meeting. Overseas, the Bank of England also left its benchmark interest rate unchanged at 3.75% in a 6-3 vote.

Attention now shifts to the Bank of Japan, which is expected to leave its policy rate unchanged at 1.00% when it announces its decision overnight. The Japanese yen strengthened sharply against the U.S. dollar ahead of the meeting, fueling speculation that Japanese authorities may have intervened to support the currency.

For U.S. investors, however, the primary focus remained squarely on America’s technology giants. In addition to Microsoft’s outsized gain, Amazon rose 3.9% ahead of its earnings report after the closing bell. Apple, which is also scheduled to report after the close, slipped 1.4% after a strong run to record highs in recent weeks.

Thursday’s session underscored just how quickly investor sentiment can shift when confidence in AI spending is restored. After several weeks of pressure on semiconductor stocks and mega-cap technology shares, strong results from Microsoft and Lam Research reignited enthusiasm for the AI investment theme, producing one of the market’s strongest technology-led rallies in recent months.

Our FTInvest 11 model portfolio edged up 0.03% to close at 1,065.49, posting a virtually unchanged session as the portfolio stabilized following several days of modest fluctuations. The portfolio remains comfortably above the 1,000 level and continues to trade approximately 2.8% below its all-time closing high of 1,096.33, staying within close range of record territory.

Based on the start-of-year level of 928.18, FTInvest 11 is now up approximately +14.82% year-to-date, maintaining a strong double-digit return for 2026. Today’s flat performance suggests the recent period of consolidation is continuing after July’s powerful rally to successive all-time highs. Even with the recent pause, FTInvest 11 has retained the vast majority of its gains and remains well positioned, reflecting the resilience of its disciplined, value-driven investment strategy and its continued focus on long-term capital appreciation.