By Johann M Cherian and Ragini Mathur
July 31 (Reuters) - The Nasdaq was set to open higher and lead gains among Wall Street's main indexes on Friday, boosted by Amazon's 10.5% 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 7.8% in premarket 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 dipped 0.1% after logging its biggest one-day gain on record for a company in the previous session, while Alphabet, Meta and Tesla rose about 1% each. Among chip stocks, Nvidia climbed 0.8% and Micron gained 3.6%.
At 7:23 a.m. ET, Dow E-minis were up 284 points, or 0.54%, and S&P 500 E-minis were up 30.25 points, or 0.4%. Nasdaq 100 E-minis were up 325 points, or 1.15%.
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 are on track for monthly losses reflecting the sharp selloff AI-linked stocks witnessed through July.
The Philadelphia Semiconductor index is still down over 20% in July, which would mark its biggest monthly fall since the housing bubble burst in late 2008. 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.
The University of Michigan's July consumer sentiment survey is due at 10 a.m. ET.
Chipmaker Monolithic Power Systems gained 11% after forecasting third-quarter revenue above estimates. Domain registrar GoDaddy lost 16% after narrowing its annual revenue forecast.
(Reporting by Johann M Cherian and Ragini Mathur in Bengaluru; Editing by Maju Samuel)
