In the latest Daily Market Notes to investors, Navellier & Associates analysts said strong earnings reports from Microsoft (NASDAQ:) and Alphabet (NASDAQ:) bolstered the outlook for the artificial intelligence sector and the current earnings season.
“Stocks are having their best week of the year, recovering from their first major pullback since a strong rally that began in late October. Once again, big tech companies are leading the way, with Magnificent Seven shares up 3.3% this morning and 4.4% for the week.
Despite cautious remarks from Taiwan Semiconductor (TSM) that previously weighed on Nvidia (NVDA) shares, assurances from major tech companies about significant investments in artificial intelligence infrastructure led to a recovery in NVDA’s price to $873.
The return to optimism was boosted by Alphabet’s strong earnings report, which not only beat earnings expectations but also announced significant share buybacks and new dividends, sending the company’s shares to all-time highs with a 10% gain today.
“It was critical that Big Tech earnings come out strong as they not only have a large weighting in indexes, but also have an even larger share of overall earnings,” analysts said.
However, not all technology companies have succeeded, they continued.
Intel (NASDAQ:) reported disappointing financial results and lower-than-expected profitability due to a lack of significant AI impact. Its shares fell 11.2%.
In the broader market, concerns about high personal consumer expenditures (PCE) inflation rates eased as both headline and core PCE figures for March were in line with forecasts, bringing relief to the bond market.
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Meanwhile, 10-year U.S. Treasury and bond yields fell slightly, reflecting the market’s adjustment to a prolonged decline in inflation.
On the consumer side, the latest University of Michigan survey showed stable inflation expectations but a slight decline in consumer sentiment remaining near a three-year high.
Performance varied in specific sectors: Exxon (CVX) and Chevron (NYSE:) (NYSE:) is on the decline after missing earnings expectations, contrasting with the minimal impact of energy stocks on broader indexes.
“Overall, this week’s strong recovery supports a ‘buy the dip’ mentality and the important AI theme remains intact, all with continued uncertainty over when the Fed will cut rates,” the analysts said.
“With employment strong and consumer spending constrained (personal spending in April was +0.8%, above the 0.6% forecast), market momentum has returned to growth,” they added.