An explosive rally in technology stocks has recently swept Wall Street, with the S&P 500 tech sector soaring 11.4 per cent in five days—a surge rarely seen outside major market dramas. Nvidia shares alone have jumped 16 per cent in a week. Investor enthusiasm is evident, marked by over 4 million call options, a historical high, purchased in a single day, and hedge funds recording one of their biggest buying weeks since 2008. This bullish turn is driven by impressive quarterly earnings and AI optimism.
Microsoft significantly contributed to this sentiment. Microsoft Corporation, a multinational technology company, develops software, consumer electronics, and provides cloud services through its Azure platform. Following its June quarter results, Microsoft’s stock surged almost 25 per cent, adding US$450 billion to its market capitalisation. Growth was notably propelled by a 43 per cent expansion in its Azure cloud computing division, with revenue surpassing US$100 billion for the first time. This performance seemingly validated substantial AI investments.
However, closer scrutiny reveals a concentrated source for Microsoft’s AI-driven success. Analysis suggests up to 70 per cent of Microsoft’s AI revenue—and 7 per cent of its total—originates from one client: OpenAI. An early investor, Microsoft benefits from OpenAI as a major customer, contributing US$24.1 billion to its June quarter revenue. This reliance on OpenAI, reportedly burning tens of billions annually without profitability, raises pertinent questions about this revenue stream’s sustainability.
This dependency extends across the sector. Barclays estimates that OpenAI and its rival Anthropic will account for 73 per cent of Amazon’s AI revenues in 2026-2027. Similarly, UBS projects 28 per cent of Google’s cloud revenue in 2026 will come from these two, potentially rising to over 48 per cent by 2027. While AI return promises fuel the current market rally, investors must consider the precarious reliance on companies whose economic models are yet to be proven sustainable, raising questions for the broader tech euphoria.
