US stocks rally on Big Tech AI optimism despite Middle East oil spike
Wall Street climbs on earnings from the 'Magnificent Seven', while Brent crude hits four-year highs amid reports of potential US military escalation against Iran.
US stock indices climbed on Thursday as robust earnings from major technology companies reinforced investor optimism regarding artificial intelligence demand. The Dow Jones Industrial Average, S&P 500, and Nasdaq all advanced, driven by a collective outlook from the sector's leading firms for approximately $725 billion in AI expenditure this year. This represents a 71 per cent increase in spending compared to the previous year, with semiconductor and AI infrastructure stocks leading the charge despite broader geopolitical headwinds.
While equity markets found support, oil prices surged to four-year highs following reports that President Trump is considering fresh military options against Iran, including the potential deployment of hypersonic missiles. Brent crude futures jumped 7 per cent to top $126 a barrel after the Strait of Hormuz remained effectively closed since late February, choking off flows of crude and oil products. The European Central Bank and the Bank of England cited the Middle East conflict as a key stressor weighing on economic sentiment, noting that the war has stymied the global energy system and pushed up inflation.
Despite the volatility in energy markets, major central banks maintained their interest rates steady. The Federal Reserve held rates unchanged, with Chair Jerome Powell indicating plans to stay in his role past the end of his current term. Similarly, the European Central Bank kept its deposit facility rate at 2 per cent, while the Bank of England maintained its bank rate at 3.75 per cent. Policymakers in both regions emphasised that while they cannot control global energy prices, their focus remains on ensuring higher inflation does not persist and have long-lasting effects on the economy.
In the technology sector, Amazon reported a cloud backlog of $364 billion in the first quarter, excluding a recently announced deal with Anthropic for over $100 billion. CEO Andy Jassy highlighted a six to 24-month lag between infrastructure spending and revenue recognition, noting that the company must lay out cash for land, power, buildings, chips, and servers before monetising that capacity. This backlog, described as having reasonable breadth, serves as a key indicator for whether the current AI spending boom translates into future growth or cash drain.
Semiconductor stocks rallied alongside the broader market, with Qualcomm surging 9 per cent in premarket trading. Peers Broadcom, Intel, and AMD also climbed higher, driven by expectations of growing AI infrastructure demand and the need for central processing units for agentic AI. The sector's performance underscores the belief that makers of chips required for data centres and hyperscalers are primary beneficiaries of the ongoing trade, even as other sectors face pressure from higher energy costs.
Economic data released alongside the trading session further supported the market's resilience. Initial jobless claims fell to 189,000 for the week ended April 25, significantly lower than the expected 212,000. Additionally, Personal Consumption Expenditures (PCE) inflation data for March showed a 0.7 per cent monthly increase, aligning with expectations, while personal income rose 0.6 per cent and personal spending increased 0.9 per cent. These figures suggest that the US labour market remains tight and inflation is stabilising, providing a backdrop for continued central bank caution.
