Microsoft Earnings Boost AI Momentum: Micron, SanDisk Surge as Chip Stocks Rebound

Microsoft (MSFT-US) reported earnings that alleviated market concerns about the sustainability of AI spending, triggering a broad rebound in U.S. semiconductor and storage stocks on Thursday. Beyond demonstrating growth momentum in its cloud business, Microsoft's management signaled that the company expects to maintain positive free cash flow in the new fiscal year, prompting investors to reassess the outlook for the AI investment cycle.

Microsoft's capital expenditures, including financing leases, rose 70% year-over-year this quarter, indicating the company is actively expanding its AI and cloud infrastructure. Despite continued investment expansion, Microsoft expects to generate positive free cash flow in the new fiscal year, easing market fears that AI costs could outpace related revenues and drag down cash flow.

Gil Luria, Managing Director at D.A. Davidson, noted that Microsoft is pursuing a relatively prudent financial strategy while expanding capital expenditures. The improvement in cloud business growth and the outlook for positive free cash flow indicate that AI investments are translating into revenue, boosting market confidence in the overall AI investment cycle.

Wedbush analyst Matt Bryson also stated that AI demand is accelerating Microsoft's cloud revenue growth, contradicting market skepticism that "AI spending is crushing corporate growth and cash flow, and therefore cannot be sustained."

Fueled by the earnings report, Microsoft surged 15.51%, adding $450 billion to its market value—the largest single-day market cap increase in corporate history. This rally lifted Micron Technology (MU-US), which jumped 18.36%; SK Hynix ADR (SKHY-US), up 17.52%; SanDisk (SNDK-US), soaring 25.99%; Western Digital (WDC-US), rising 15.37%; and Seagate Technology (STX-US), gaining 11.41%.

AI chip stocks also rebounded: AMD (AMD-US) rose 13.00%, Marvell Technology (MRVL-US) surged 12.18%, Intel (INTC-US) climbed 11.30%, Broadcom (AVGO-US) gained 4.73%, and NVIDIA (NVDA-US) advanced 2.65%.

However, despite double-digit gains on Thursday, many memory and storage stocks have yet to return to their earlier highs this year.

Chip stocks faced heavy selling in July, reflecting investors' shift from focusing solely on short-term capital spending by tech companies to emphasizing whether AI expenditures can translate into sustainable revenue and cash flow to support long-term investment.

Hendi Susanto, a research analyst at Gabelli, believes Microsoft's earnings reignited buying interest in chip stocks. While investors welcome increased capital spending by tech giants, they also demand that such investments quickly reflect in corporate growth.

In addition to renewed confidence in AI investment, easing market deleveraging pressure also contributed to the chip stock rebound. Some South Korean investors had previously used excessive leverage on bets in the country's memory sector, amplifying volatility in U.S. and Korean chip stocks. However, recent measures have been introduced to limit such speculative positions.

Andrew Rocco, stock strategist at Zacks Investment Research, noted that markets often approach bottoms after highly leveraged investors exit. He believes Thursday's rally reflects both the fading of deleveraging sell pressure and renewed investor interest in chip stocks following valuation corrections.

Notably, Samsung Electronics' latest Q2 earnings and memory market outlook also provided additional support for the sector. Samsung stated that despite continued increases in production, memory supply shortages could persist into next year and even extend into 2028, highlighting that supply-demand pressures from AI demand have not yet eased.