In the latest Daily Market Notes report to investors, Navellier & Associates analysts say strong earnings reports from Microsoft (NASDAQ:) and Alphabet (NASDAQ:) have revived the outlook for the AI sector and the current earnings season.
“Shares are having their best week of the year, recovering from the first major pullback since the strong rally that started at the end of October. Once again, the big tech sector is leading the way, with the Magnificent 7 up 3.3% this morning and 4.4% for the week,” the analysts pointed out.
Despite cautious comments from Taiwan Semiconductor (TSM) that previously impacted Nvidia (NVDA) shares, reassurances from major tech companies about significant investments in AI infrastructure led to a recovery in NVDA to $873.
The return of optimism was helped by a strong response from Alphabet, which not only beat earnings expectations but also announced a significant share buyback and a new dividend, sending its shares to record highs today, up 10%.
“It was very important that profits from the major technology sectors would be strong, as they not only have a large weight in the indexes, but also account for an even larger share of overall profits,” the analysts said.
However, not all tech companies did well, they continued.
Intel (NASDAQ:) reported disappointing revenue results and lower-than-expected margins, and lacked significant exposure to AI. The stock fell by 11.2%.
In the broader market, fears of high inflation rates for personal consumption expenditure (PCE) eased as both headline and core PCE for March were in line with forecasts, providing relief for the bond market.
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Meanwhile, US 10-year Treasuries saw a slight decline in yields, reflecting the market’s adjustment to a long-term path of inflation reduction.
On the consumer front, the latest research from the University of Michigan showed stable inflation expectations, but a slight decline in consumer confidence, which remains near a three-year high.
Sector-specific performance varied, with Exxon (CVX) and Chevron (NYSE:) (NYSE:) experiences declines after missing earnings estimates, contrasting with energy stocks’ minimal impact on broader indices.
“Overall, the strong recovery this week supports the buy-the-dip mentality, and the important AI theme remains on track, all with continued uncertainty about when the Fed will cut rates,” the analysts said.
“With employment strong and consumer spending still under pressure – personal spending in April was +0.8%, above the 0.6% forecast – market momentum is back to upside,” she added .
