Shares of SanDisk, Micron, and other chip manufacturers surged sharply on Thursday. Microsoft's "responsible" stance on artificial intelligence investments appeared to be good news for companies benefiting from its spending. Microsoft has invested heavily in AI, but analysts noted its "responsible" approach to finances. Microsoft's capital expenditure, including finance leases, rose 70% in the latest quarter, but management stated it expects positive free cash flow in the new fiscal year, alleviating market concerns that Microsoft might enter a cash-burning mode due to a significant disconnect between AI costs and revenue. This statement was positive news for chip stock investors, who had seen shares fall far below their peaks in the July sell-off, reflecting worries about the sustainability of AI spending.

Micron Technology rose 17% in afternoon trading on Thursday, while SanDisk surged 24%. Storage manufacturers Western Digital and Seagate Technology also recorded double-digit gains of 14% and 10%, respectively. However, these stocks remain below their earlier highs this year. AI chip stocks also broadly moved higher, with AMD up 13%, Marvell Technology up 11.5%, Broadcom up 4%, Nvidia up 2%, and Intel up 12.9%.

Gil Luria, Managing Director at D.A. Davidson, pointed to Microsoft's "responsible attitude" toward capital expenditure as a driving factor for the chip sector's rally on Thursday. Wedbush analyst Matt Bryson believes the improvement in cloud revenue driven by Microsoft's AI business "does not align with the narrative that AI spending is crushing growth and cash flow and is unsustainable." Gabelli Research analyst Hendi Susanto also noted that Microsoft's earnings report revived chip stocks. One of the chip sector's previous issues was excessive leverage by Korean investors, but recent measures have curbed speculative bets. Andrew Rocco, equity strategist at Zacks Investment Research, stated that when over-leveraged investors capitulate, it often signals a market bottom. He believes Thursday's rally was a combination of deleveraging and bargain buying by investors attracted to valuations. Susanto also noted that Korean storage giant Samsung Electronics had just reported strong quarterly results and an optimistic outlook for storage demand, which served as another driver for Thursday's move. Samsung stated that despite focusing on increasing production, it expects storage chip shortages to persist into next year.