Magnificent Seven index jumps 3.6% as Microsoft, Amazon earnings fuel rally

The Magnificent Seven index rose 3.6% in its largest single-day gain since March 31, as Microsoft Corp. and Amazon.com Inc. delivered blowout cloud earnings that reignited the artificial-intelligence trade.

"We continue to buy the dip, and keep in mind this is the most hated V-shaped rally," said Tom Lee, head of research at Fundstrat Global Advisors.

Microsoft shares surged 15.5% on Thursday, adding a record $450 billion to its market capitalization — eclipsing Nvidia Corp.'s $440 billion single-day gain last year as the biggest ever, according to Bloomberg data. The software giant reported fiscal fourth-quarter revenue of $90 billion, up 18% year over year and beating the $87.7 billion consensus, with Azure cloud growth accelerating to 43% from 40% in the prior quarter. Adjusted earnings came in at $4.81 per share versus the $4.24 analyst target. Amazon also beat expectations, with Amazon Web Services revenue rising 37%, sending its stock up 12% in premarket trading.

The rally marks a dramatic reversal for mega-cap tech, which had been the market's biggest laggard through the first half of 2026. Microsoft was the worst-performing Magnificent Seven stock in H1, and the index remains down 6.3% year-to-date even after Thursday's surge. The Roundhill Magnificent Seven ETF is still down 3.37% for the year versus an 11.60% gain for the Invesco QQQ Trust.

Microsoft's guidance reinforced the bullish case. The company forecast fiscal 2027 first-quarter sales with a midpoint of $90.4 billion, above the $89.66 billion estimate, and projected Azure growth of 45% on a constant currency basis versus the 40.92% analyst consensus. CEO Satya Nadella said the Azure business surpassed $100 billion in annual revenue for the first time in fiscal 2026.

The earnings beat comes after a bruising stretch for software stocks. Microsoft had registered its worst half-year performance since 2000, pressured by a broader selloff in software names, hefty capital spending plans, and intensifying competition in AI from Google, Anthropic, and OpenAI. The company's capital spending plans for 2026 remain unchanged, according to its earnings release.

Retail traders have turned decisively bullish. Stocktwits sentiment for MSFT held in the "extremely bullish" zone following the earnings report, with one trader noting interest in adding positions near $370.

The broader market backdrop remains mixed. The S&P 500 closed at 7,413.18, up just 0.02% on Monday, while the Nasdaq Composite sat at 24,932.08. The 10-year Treasury yield was at 4.621%, and oil traded near $80.57 per barrel as traders weighed the U.S.-Iran standoff. Gold was at $4,042.20 an ounce.

Michael Burry of Scion Asset Management cautioned that the market has been favoring companies showing stronger returns on AI capital over larger commitments. Alphabet, Amazon, Microsoft, Meta, and Oracle have all underperformed the broader market since the start of June, according to a Bloomberg chart Burry shared on X.

Lee argued that pullbacks in AI plays are buying opportunities, drawing a parallel to Cisco Systems' run from 1994 to 2000, when the stock fell 40% twice before ultimately delivering a 100x move. "The big money is not in the buying and selling but in the waiting," he said, quoting the late Charlie Munger.

The next test for the Magnificent Seven comes as the Federal Reserve's rate decision looms on Wednesday, with prediction markets pricing a 27% probability of a 25-basis-point hike.

This article is for informational purposes only and does not constitute investment advice.