Stock Market Rallies on Microsoft, Meta Earnings and Trump Tariff Truce Hopes: Weekly Review

The U.S. stock market surged this week, driven by blockbuster earnings from tech giants microsoft (NASDAQ: MSFT) and Meta Platforms (NASDAQ: META), alongside fading fears over escalating trade tensions. The Nasdaq Composite climbed 1.5%, while the S&P 500 added 0.63%, marking its eighth consecutive gain—the longest streak since 2020. encapsulates the week’s narrative. Yet beneath the surface, lingering tariff risks and macroeconomic headwinds underscore the fragility of this tech-driven rally.

Microsoft’s AI-Driven Surge

Microsoft’s fiscal Q3 results set the tone for the week, with revenue hitting $70.1 billion, beating estimates by $1.7 billion. Its Azure cloud business grew 33% year-on-year, with AI services now contributing 16% of Azure’s revenue—a 3-point increase from the previous quarter. reveal an 8% jump this week alone, as investors bet on AI’s transformative potential. Analysts at Morgan Stanley and Wedbush upgraded their price targets to $482 and $515, respectively, citing AI’s role in "reshaping enterprise software adoption."

However, CEO Satya Nadella tempered optimism, noting that Trump’s April tariffs—which impose 25% duties on non-USMCA auto parts and 125% on Chinese imports—could delay some data center projects. "We’re navigating the tariff landscape with flexibility," he said, reaffirming a $80 billion fiscal 2025 capital spending plan.

Meta’s AI Turnaround

Meta Platforms delivered its strongest earnings in years, with revenue soaring 16% to $42.3 billion, driven by AI-enhanced ad targeting. Its AI tools, such as Llama 3, now serve nearly 1 billion monthly active users across its platforms. Shares rose 6% this week, reversing April’s 10% slump. shows it remains 15% below its January peak, but analysts at Bank of America and JPMorgan raised price targets to $690 and $675, citing "AI’s structural growth tailwinds."

Yet Meta faces dual challenges: European regulators’ scrutiny of its ad algorithms and China’s retaliatory tariffs, which have already hit U.S. agricultural exports. CFO Susan Li acknowledged these risks but emphasized Meta’s $64–72 billion capex plan for AI infrastructure as a "strategic imperative."

Tariffs: A Double-Edged Sword

President Trump’s tariff policies remain a wildcard. While April’s 10% "universal tariff" on imports and May’s auto parts duties stoked fears of stagflation, the administration’s April 29 executive order—prohibiting "tariff stacking"—eased near-term pressures. The move, which retroactively refunded overlapping duties, fueled speculation of a broader truce.

The Penn Wharton Budget Model (PWBM) estimates that tariffs could reduce U.S. GDP by up to 6.3% by 2054, with average wages dropping 5.8%. Yet the market’s focus remains on short-term wins: Microsoft and Meta’s AI investments, which analysts argue mitigate tariff risks by boosting software and cloud spending.

Broader Market Outlook

The tech sector’s resilience contrasts starkly with broader economic softness. The S&P 500’s eight-day streak reflects investor optimism in AI-driven growth, but sectors like industrials and materials remain depressed by tariff uncertainty. For instance, General Motors warned of a $4–5 billion tariff-related hit, while Eli Lilly’s drug-related charges sent its shares plunging 11%.

Meanwhile, the Federal Reserve’s May 4 decision to hold rates steady—amid slowing GDP growth—suggests policymakers are wary of tightening amid trade wars. "The market is pricing in a ‘Goldilocks scenario’ where AI growth offsets tariff drag," said Jefferies strategist Sean Darby.

Conclusion: Betting on Tech, Bracing for Tariffs

This week’s rally underscores a critical divide: while Microsoft and Meta’s AI-driven earnings justify optimism, the long shadow of tariffs looms large. With PWBM projecting a 5.1–6.3% GDP contraction by 2054 and the S&P 500’s valuation at 22x forward earnings—near its 10-year average—the market’s gains may be overstretched without tariff resolution.

Investors should prioritize companies with AI exposure and diversified supply chains. Microsoft and Meta’s stock climbs (8% and 6%, respectively) reflect this strategy, but the broader market’s health hinges on whether trade tensions ease or escalate. For now, tech’s AI revolution buys time—but the tariff reckoning may still be ahead.