By Johann M Cherian and Ragini Mathur
July 31 (Reuters) - The Nasdaq led gains among Wall Street's main indexes on Friday, buoyed by Amazon's 13.7% jump after the Big Tech company joined some of its peers in delivering strong cloud revenue growth, putting to rest concerns about AI returns.
Limiting some optimism, Apple warned that supply constraints would hurt growth, prompting investors to look beyond near-term shortages to gauge the hit from an expected iPhone price hike as its shares dropped 9.8%
in early trading.
This week was what some analysts called 'make-or-break' for the tech sector that had been rattled by investors taking some profits through July following a strong end to the second quarter, as they awaited signs that investments made by AI leaders at the expense of free cash flow were paying off.
Amazon reported its biggest revenue growth in over four years for the previous quarter on Thursday, joining similar reports from Microsoft and Alphabet earlier this month, prompting investors to look past the big drop in cash flows that the companies also logged.
"Amazon showed us, without a shadow of a doubt, that the web-services or AI side of the business is driving growth for the company," said Adam Sarhan, chief executive of 50 Park Investments in New York.
"Investors are able to look past the free-cash-flow decline because it is one component. If growth continues, it will make up for that shortfall."
Shares of Microsoft were up 1.8% after logging their biggest one-day gain on record for a company in the previous session, while Alphabet and Meta gained more than 2% each. Among chip stocks, Nvidia climbed 1.3% and Micron gained 1.6%.
At 9:47 a.m. ET, the Dow Jones Industrial Average rose 82.26 points, or 0.16%, to 52,290.32, the S&P 500 gained 10.05 points, or 0.12%, to 7,446.54 and the Nasdaq Composite gained 86.20 points, or 0.34%, to 25,208.37.
The S&P 500's consumer discretionary sector led the gains, up 5.2%, helped by Amazon's surge.
TOUGH MONTH FOR STOCKS
All three of Wall Street's main indexes are on track for weekly gains, aided by the strong rebound late this week. But the S&P 500 and the Nasdaq were on track for monthly losses, reflecting the sharp selloff AI-linked stocks witnessed through July.
The Philadelphia Semiconductor index rose 1.8% on Friday, but it was still down over 16.7% in July, which would mark its biggest monthly fall since June 2022. Investors instead took notice of other sectors, as the S&P 500 equally weighted index is on track for its fourth-straight month of gains.
"This momentum crash was tremendous and the positioning has been rinsed," said Laurent Clavel, global head of multi-asset at AXA Investment Managers, BNP Paribas Asset Management.
"Going into August, if anything, we are going back into it slowly. We're buying this weakness and we're re-buying this AI narrative," Clavel said.
The week also brought uncertainty in terms of interest rates after the Federal Reserve left its benchmark rate on hold. Chairman Kevin Warsh's commentary and a broadly benign inflation report on Thursday led investors to price in a 35% chance that rates will remain unchanged in September — up from about 18% last week, according to CME's FedWatch tool.
Chipmaker Monolithic Power Systems gained 11.1% after forecasting third-quarter revenue above estimates. Domain registrar GoDaddy lost 24.4% after narrowing its annual revenue forecast.
Declining issues outnumbered advancers by a 1.18-to-1 ratio on the NYSE and by a 1.16-to-1 ratio on the Nasdaq.
The S&P 500 posted three new 52-week highs and one new low, while the Nasdaq Composite recorded 29 new highs and 30 new lows.
(Reporting by Johann M Cherian and Ragini Mathur in Bengaluru; Editing by Maju Samuel)
