Microsoft’s $450bn Day Sparks Chip Rally as Nasdaq Soars 3%

The Rally That Reshuffled Tech

Wall Street staged a powerful rebound on Thursday, recovering nearly all of the ground lost in the previous session’s post-Fed sell-off. The Dow Jones Industrial Average jumped more than 600 points, reclaiming over half of Wednesday’s 1,100-point plunge. The S&P 500 climbed 1.7%, while the Nasdaq Composite surged 2.7%, completely erasing its prior losses. The tech-heavy Nasdaq 100, which had slipped into a technical correction a day earlier, soared nearly 3.5%.

At the centre of the rally was Microsoft, whose shares rocketed 15% in their best single-day performance since October 2008. The company added close to $450 billion in market capitalisation—the largest one-day gain ever recorded by any stock, eclipsing the $440 billion Nvidia added after Donald Trump’s tariff pause in April 2025. The results signalled massive spending on artificial intelligence infrastructure, lighting a fire under semiconductor stocks.

Almost every major chip name rallied sharply. AMD, Intel and Micron jumped between 11% and 18%, the SK Hynix ADR surged 18%, and Sandisk skyrocketed 26%. Nvidia lagged the group but still rose 2.5%. The chip rally triggered a sharp reversal in software names that had outperformed earlier in the week: Salesforce, Adobe, Accenture and Cognizant all fell between 4% and 6%, and the US-listed Infosys ADR lost over 5%—despite the Indian-listed entity gaining 11% for the week.

The market’s enthusiasm bulldozed through a slate of troubling macro data. Second-quarter US GDP came in at 1.5%, well below the 1.8% estimate and a marked slowdown from the first quarter’s 2.1%. The Fed’s preferred inflation gauge, the core PCE index, rose 3.3% year-on-year in June, matching expectations but still far above the 2% target. Meanwhile, the 10-year Treasury yield hovered near its highest since 2025, and the 30-year yield remained at levels not seen since 2007.

Behind the Rotation: AI, Rotations, and Macro Warnings

Microsoft’s AI Capex Bonanza Lifts the Chip Sector

Microsoft’s blockbuster rally was a direct vote of confidence in the company’s AI roadmap. The scale of its capital spending plans—implied by the results—sent a clear signal to the market: demand for advanced semiconductors is set to accelerate. The breadth of the chip rally, stretching from memory makers like Micron and SK Hynix to logic and foundry players, suggests investors believe AI-driven orders will lift the entire supply chain. Sandisk’s 26% jump, for example, hints at expectations for a surge in high-capacity storage to support AI workloads. Nvidia’s more muted gain may reflect profit-taking after its own meteoric rise earlier in the year, or a recalibration of the narrative away from a single-monopoly winner toward a wider ecosystem play.

Software Takes a Hit as Money Rotates

The sell-off in software stocks was the mirror image of the chip rally. Companies such as Salesforce, Adobe, Accenture and Cognizant had rallied strongly earlier in the week—likely on hopes that steady enterprise IT spending would hold up. Thursday’s price action suggests that money is now being pulled out of that trade and redeployed into AI hardware. The rotation is not just about earnings; it reflects a deeper conviction that the near-term value capture in AI is concentrated in chipmakers, with software benefits potentially more diffuse and longer-dated. The fall in Infosys’s ADR, even as its Indian stock gained, highlights how US-listed proxies can amplify sentiment swings that are not always echoed in local markets.

Macro Warnings Ignored—For Now

The market’s ability to shrug off a clear GDP miss and sticky inflation is remarkable. With the economy growing at just 1.5% and core inflation stuck at 3.3%, the macro backdrop is far from ideal for richly valued tech stocks. The fact that long-end bond yields are at multi-year highs adds another layer of risk: higher discount rates should, all else equal, compress equity valuations. Thursday’s rally suggests that for now, the AI narrative is powerful enough to override these concerns. However, if economic data continues to weaken while inflation stays elevated, the tension between the macro reality and the AI optimism will almost certainly intensify.

What It Means for Investors

• Ride the AI wave, but watch the capex signals. Microsoft’s spending plans underpin demand for chips across the board; any hint of a pullback in future guidance from hyperscalers would be a serious risk to the trade. Track management commentary from Exxon, Chevron, AbbVie and Linde—reporting today—for broader corporate spending sentiment.
• Bond yields are a ticking clock. The 10-year near its 2025 highs and the 30-year at a 2007 peak mean tech valuations are unusually exposed to rate movements. Consider how much of the chip rally already prices in perfection, and whether a yield spike could trigger a rapid unwinding.
• Software may offer value if the rotation proves temporary. The 4-6% drops in names like Accenture and Cognizant could be entry points if enterprise spending on digital transformation remains robust. Watch for their own earnings reports to see if the sell-off was overdone.
• Stay alert to consumer sentiment and energy earnings. Friday’s consumer sentiment data and results from energy majors could shift the macro narrative. If consumer confidence cracks or oil-sector profitability disappoints, the market’s narrow tech focus could face a broader reckoning.