U.S. equities rebounded sharply on Thursday, led by Microsoft's blockbuster earnings and a recovery in semiconductor shares that helped recoup losses from the prior session's broad sell-off.

The S&P 500 advanced 0.9%, recovering more than half of its losses from Wednesday, which marked the index's worst performance in seven weeks. The Dow Jones Industrial Average gained 250 points, or 0.5%, as of 9:35 a.m. Eastern time. The Nasdaq composite, heavily weighted with chip stocks and artificial intelligence-related companies, surged 1.8% — a day after it had fallen 9.8% below the record high set last month.

Microsoft Earnings Power the Rally

Microsoft led the market higher, jumping 15.2% after delivering a stronger quarterly profit than analysts had anticipated. The company reported robust growth in its Azure cloud computing business, with CEO Satya Nadella attributing the results to customers increasingly turning to Microsoft for their AI transitions.

Critically for investors, Microsoft did not signal a major increase in planned AI capital expenditures — a move that several other Big Tech competitors have made in recent quarters. That distinction mattered on a day when markets were still digesting whether the AI spending boom is translating into earnings support fast enough to justify the sector's rapid gains.

Meta's Disappointment Underscores Spending Concerns

Meta Platforms illustrated precisely those anxieties, with shares declining 8.9%. The parent company of Facebook and Instagram posted a quarterly profit below Wall Street expectations, despite reporting slightly higher-than-expected revenue. Analysts highlighted the company's decision to raise the lower end of its projected investment spending range for the year as a particular concern.

Chip and Memory Stocks Rebound

Companies that supply computer memory and processors to the large cloud infrastructure providers — known as "hyperscalers" — rose on Thursday, clawing back substantial recent losses driven by fears that AI euphoria had driven their valuations too far, too fast. The moves also showed how tightly the broader market remains tied to a small group of heavyweight technology names and the suppliers that feed their data center buildouts.

Micron Technology surged 8.4%, trimming its weekly decline to 13% and ranking among the strongest contributors to the S&P 500 behind Microsoft. Lam Research leaped 18.3%, while Advanced Micro Devices rallied 7.3%.

Treasury Yields Stabilize

Broader equity markets also drew support from a stabilization in longer-term Treasury yields, which slowed the sharp upward moves seen the previous day. The yield on the 10-year Treasury eased to 4.65% from 4.67% late Wednesday. The 30-year Treasury yield held at 5.20%, a day after surging from 5.09%.

Yields had spiked Wednesday after Federal Reserve Chairman Kevin Warsh offered few indications of the central bank's next steps to address persistently high inflation. While higher yields can help contain inflation, they also risk slowing economic growth and pressuring valuations for equities and other risk assets, particularly in rate-sensitive parts of the market.

Economic Data and Oil Markets

Economic reports released Thursday indicated that U.S. GDP growth slowed more than economists had forecast during the spring months. Meanwhile, inflation for the prior month remained above the Federal Reserve's target, though slightly less severe than anticipated.

In energy markets, oil prices moderated following recent volatility tied to escalating conflict in the Middle East. Brent crude, the international benchmark, fell 1.5% to $86.79 per barrel. Prices have swung dramatically — dropping as low as $72 earlier in July and spiking as high as $102 last week — amid uncertainty over whether the United States and Iran can reach an agreement to allow oil tankers to resume free passage from the Middle East to global customers.

AP Business Writers Chan Ho-him and Matt Ott contributed to this report.