South Korea’s Kospi rebounded sharply by 18% on Friday, marking a broader revival of the AI trade. Gains came after Microsoft and Amazon’s Q2 results showed that markets are no longer rewarding companies merely for announcing larger AI spending plans. Instead, they are demanding evidence that those billions are translating into revenue growth, customer demand and contracted business.
That shift became evident in the contrasting market reactions to Big Tech earnings.
Alphabet, Google’s parent company stock saw negative reaction even after it reported strong quarterly revenue. Investors were disappointed as the company’s free cash flow turned negative for the first time since its 2004 IPO, with the company generating $39.1 billion in operating cash flow but spending $44.9 billion in capex. Moreover, it also raised its 2026 capex guidance from $190 billion to as much as $205 billion, keeping investors perplexed whether the pace of spending could continue without weighing on cash flows.
Similarly, Facebook parent Meta stock tumbled 9% post earnings as it reported free cash flow of just $784 million for the June quarter, down sharply from $8.55 billion a year earlier. The company also increased the lower end of its 2026 capex guidance to $130-$145 billion from an earlier $125-$145 billion range.
Microsoft, Amazon show AI investments can deliver
On the other hand, companies that demonstrated visible monetisation from AI investments were rewarded. Microsoft and Amazon shares jumped nearly 9% each after their quarterly results provided investors with stronger evidence that their AI spending was tied to actual demand.
Amazon, for instance, announced a larger capex plan of $220 billion for 2026 but it also disclosed that its remaining performance obligations – like cloud contracts customers have already signed but Amazon hasn’t billed yet has jumped from $364 billion to $496 billion in a single quarter. That backlog gave investors confidence that the company was expanding infrastructure to meet existing demand rather than betting on future demand that hasn’t come in yet.
Microsoft also benefited from stronger confidence around its cloud business, with Azure growth helping revive optimism around enterprise AI adoption.
AI optimism returns after sharp market correction
Andrew Jackson, head of equity strategy at Ortus Advisors, wrote in a note that Microsoft’s stronger-than-expected results triggered a sharp recovery in risk assets and AI-related stocks. He said “Azure’s performance reassured investors, while management’s disciplined approach to capital spending showed that a ‘spend at all costs’ mindset was being punished by markets.”
The optimism spread quickly to Asia, particularly South Korea, where semiconductor giants such as Samsung Electronics and SK Hynix led the recovery. The rally came after one of the steepest corrections in Kospi’s recent history. The benchmark had fallen nearly 40% from its June peak, with losses accelerating after a 11% crash triggered an automatic circuit breaker. The sharp decline had raised concerns that investors were losing faith in the AI-led investment cycle.
However, the latest US earnings revived confidence that the hundreds of billions of dollars being invested into AI infrastructure could eventually generate proportionate returns.
Charlie Dai, vice president and principal analyst at Forrester, told CNBC that the recent sell-off was “less about weakening AI demand and more about a repricing of expectations after an exceptionally strong rally.”
For now, though, this earnings season has redrawn the AI investment playbook. The market is no longer handing out premiums simply because companies are spending more on AI. Instead, it is rewarding those that can demonstrate that every dollar invested is backed by tangible earnings growth.
