Technology stocks are once again emerging winners from a crisis, as some of the sector's biggest names reported bumper quarterly results – but that also calls into question how long they can sustain that momentum.
The last time tech stocks were this high was in April 2020 – about a month after the Covid-19 pandemic first brought the world to a standstill and the need for tech services to connect people exploded.
This time, artificial intelligence is in the starring role. Amazon, Google parent Alphabet, Microsoft and Facebook owner Meta Platforms all posted solid results as their cloud units maintain their commitment to backing numerous AI models.
Still, Big Tech should not rest on its laurels.
“In a market obsessed with AI monetisation, beating expectations is no longer enough,” said Jian Lu, founder and managing partner at Lionhill Wealth Management.
“You have to prove the spend is worth the trend.”
Diversifying risks
Amazon posted its fastest cloud growth in more than three years, Microsoft’s Azure cloud arm recorded nearly 40 per cent growth, and Alphabet and Meta beat expectations.
The results are “effectively diversifying individual risks”, said Ipek Ozkardeskaya, a senior analyst at Swissquote.
“The trend remains positive for AI-exposed stocks. Strong cloud revenue growth continues to validate the AI adoption story, which in turn supports demand for chipmakers.”
Meta shares, meanwhile, declined after it announced higher spending.
The company is “essentially a single bet”, as it is choosing to focus more on investing heavily in its own ecosystem, whereas Amazon, Microsoft and Alphabet are supplying infrastructure, which in turn offer computing power to benefit from the broader expansion of AI, Ms Ozkardeskaya said.
“At this stage, Meta looks like a more concentrated and riskier play, especially as competition intensifies.”
Stock movement
The tech-rich Nasdaq Composite wasn't always this high during the war. In fact, it bottomed out on March 30, when US-Iran hostilities were at their height and spreading. The gauge also did not fall immediately after the conflict started on February 28.
It rose steadily throughout April, however: from the March 30 nadir, it has now surged by nearly 19 per cent, peaking at a record close on Monday.
Six years ago, in the Covid age, the Nasdaq more than doubled from April to November. The parallels between that and Big Tech shares have largely followed a similar pattern.
That the 2026 first-quarter reporting season is off to a steady start is confirmation that earnings momentum “remains intact despite elevated uncertainty”, said Mathieu Racheter, head of equity strategy research at Julius Baer.
For the benchmark S&P 500, he noted that from nearly a third of companies that have reported so far, 84 per cent have beaten earnings expectations, markedly higher than the 10-year average of 76 per cent, and this was anchored by the information technology sector.
Mr Racheter expects earnings fever to further peak this week as about 40 per cent of S&P companies are scheduled to report their results, with higher, AI-centric spending strategies to be highlighted. But the attention is still largely on Big Tech; Apple is scheduled to report on Thursday.
“Following the recent rally in AI capex beneficiaries, the updated guidance from hyperscalers on future spending plans will be closely scrutinised,” he said. “The trajectory of these investment commitments will be critical in assessing the sustainability of the rally in AI-related stocks.”
Pricing it in
Oil soared to its highest price in four years on Thursday, with Brent popping to more than $125 a barrel, on reports that the US is considering fresh military strikes on Iran as well as deploying hypersonic missiles in the Middle East.
The impact of higher crude prices on Big Tech is mostly concentrated on logistics. Amazon, for instance, was forced to impose a 3.5 per cent surcharge on some of its third-party sellers for fuel and logistics.
Higher energy prices and the overall Iran war have shown little evidence of a broad-based slowdown in consumption so far, with weakness largely confined to more discretionary segments, such as luxury, Mr Racheter noted.
The Federal Reserve's slightly more cautious-than-expected message is also a factor, according to analysts at Dubai-based Noor Capital, who also argued markets had largely brushed off the strong Big Tech earnings reports.
The US central bank held interest rates steady for a third consecutive time on Wednesday as rising oil prices due to the Iran war added to growing concerns over inflation.
Fed officials have indicated that rates could remain on hold for some time amid an assessment of the economic fallout from the conflict, and as negotiations for a permanent end to the war remain stalled.
“Markets are now pricing in no Fed action in either direction for the foreseeable future,” the Noor Capital analysts wrote.
“Adding to the unease, rising oil prices are stoking fears of cost-push inflation – the kind that squeezes businesses and consumers even without a demand surge to justify it,” they said.
“The road ahead looks bumpy. But for investors, bumpy markets can be exactly where the best opportunities hide.”
Still, an earlier end to the regional hostilities may bode even better for the overall stock market – especially when oil prices calm down to closer to prewar levels.
“Based on the belief that both involved parties [the US and Iran] have a vested interest to stop fighting, the market has again staged a remarkable recovery, essentially pricing in an orderly resolution in due time,” analysts at Zurich-based Julius Baer wrote.
“This is not only reflected in the current levels on major equity indices but also in the oil futures market, where backwardation persists, and current pricing indicates that crude oil will be trading below $80 per barrel again at year end.”
