Dow jumps 640 points as Microsoft, chip stocks power Wall Street rebound

US stocks rebounded sharply on Thursday as investors returned to technology shares following Microsoft's stronger-than-expected earnings, helping Wall Street recover from the previous session's steep sell-off triggered by the Federal Reserve's decision to leave interest rates unchanged.

The Dow Jones Industrial Average climbed 645 points, or 1.3%, while the S&P 500 gained 1.7%.

The Nasdaq Composite surged about 3%, snapping a six-session losing streak as technology stocks led the advance.

The rally came a day after the Dow suffered its biggest one-day decline since April 2025 as investors questioned the Federal Reserve's inflation strategy and pushed Treasury yields sharply higher.

Microsoft emerged as the biggest contributor to Thursday's gains after reporting quarterly results that exceeded expectations, easing concerns over the profitability of artificial intelligence investments.

Microsoft earnings revive AI optimism

Microsoft shares jumped more than 16% after the software giant reported stronger Azure cloud growth, forecast quarterly sales above Wall Street estimates and projected capital expenditures below analyst expectations.

The company also indicated it expects to continue generating cash throughout fiscal 2027.

The upbeat results helped restore confidence in AI-related investments after recent concerns that heavy spending on data centers was weighing on profitability across the technology sector.

Semiconductor stocks rallied alongside Microsoft.

The iShares Semiconductor ETF (SOXX) advanced more than 8%, while Micron Technology and Advanced Micro Devices each surged more than 13%.

Memory-related stocks also participated in the rally, with South Korean chipmaker SK Hynix gaining more than 17%.

The broader momentum trade also returned, with the iShares MSCI USA Momentum Factor ETF (MTUM) rising more than 5%.

Not all technology companies shared in the gains.

Meta Platforms fell about 9% after reporting a 91% decline in second-quarter free cash flow and issuing weaker-than-expected revenue guidance, reinforcing investor scrutiny of AI-related capital spending.

Amazon traded higher ahead of its quarterly earnings release, while Apple edged lower before reporting results after the market close.

Fed outlook and economic data remain in focus

Despite Thursday's rebound, investors continued to monitor the bond market after Treasury yields surged following Wednesday's Federal Reserve meeting.

The 30-year Treasury yield remained near its highest level since 2007 after climbing above 5.2% during the previous session, while the rest of the yield curve was little changed.

Economic data released on Thursday showed the US economy expanded at an annualized rate of 1.5% in the second quarter, below expectations of 2.1%, as a wider trade deficit weighed on growth.

Separate data also indicated inflation moderated during June, offering some relief after recent inflation concerns.

Market expectations for monetary policy also shifted. Traders reduced the probability of a September interest rate increase to about 59%, down from roughly 82% a week earlier, according to CME FedWatch data.

Earnings season continues to drive market moves

Corporate earnings remained the primary catalyst for market performance as investors evaluated whether companies' AI investments were translating into stronger financial results.

Qualcomm declined after forecasting fourth-quarter profit below analyst expectations and warning that revenue from Apple-related products would fall faster than previously anticipated.

Fair Isaac also moved lower after lifting its annual profit and revenue forecasts, though the outlook remained below analysts' estimates.

Starbucks gained after raising its full-year sales and profit forecasts.

Second-quarter earnings have generally remained strong, with analysts expecting aggregate S&P 500 earnings to increase about 40% from a year earlier, according to LSEG I/B/E/S data.

AI-related companies continue to account for much of that growth, while the recent market pullback has left the S&P 500 trading at around 20 times expected earnings, slightly above its 10-year average.