Wall Street appeared to be heading into a difficult start to earnings season, with Alphabet (Google) setting the early tone. A first-ever quarter of negative free cash flow, amid higher AI capital spending, did not sit well with investors as concerns grew over how hyperscalers would continue to deliver.

That pressure carried through to last Wednesday, when the S&P 500 fell 1.5% and recorded its lowest daily close in seven weeks. Since then, however, Microsoft helped change the tone, and better U.S.-Iran developments this week have shifted sentiment further.

Monday’s move higher was a cautious climb, with the S&P 500 holding near 7,600 and close to the previous record highs reached in early June. That was followed by a strong wave of buying yesterday, with a technical breakout now adding momentum for further gains.

[S&P 500 index daily chart]

So what can be concluded from the latest breakout?

One takeaway is that the AI trade is not as fragile as some had feared. Over the past two weeks, there had been a growing view that investors were entering a phase of demanding companies to "show me the money now" amid rising concerns about the scale of AI-related capital expenditures.

That debate has been a major topic since the start of the year. Yet each time the market approaches that point, the issue is pushed back again. It has been about eight to ten months now, and the market is still not turning away. That says a great deal.

With the S&P 500 stalling in June and July, this earnings season was shaping up to be a pivotal test. It was effectively a make-or-break moment, and the latest move higher suggests the market has now delivered its answer.

Leopold Aschenbrenner’s AI fund blowing up initially looked like a warning sign, but markets appear to be treating it as a bottom signal after the stronger momentum from big tech earnings. It was a delicate balance, but in the end, dip buyers were rewarded for taking the risk.

Looking ahead to the rest of this week, AMD delivered strong earnings yesterday, adding to renewed momentum in semiconductors and chipmakers. The reaction also highlights how closely the market is watching individual AI supply-chain names for signs that spending is rotating rather than fading. Shares are lower in overnight trading, though that mostly reflects the sharp move higher before the earnings release as expectations were priced in, as well as the announcement that SpaceX will commit to Nvidia chips and stop buying AMD chips going forward.

AMD shares may be down about 9% in overnight trade, while Nvidia shares are up 2.5%. The broader market tone also remains reasonably constructive following the technical breakout.

Later today, Sandisk and Western Digital will be the other major names to watch after the close.