Fed Rate Decision Countdown: Earnings Drive and Risks Behind Tech Stock Rally

Fed Decision Aftermath Lingers, Tech Stocks Lead US Stock Rebound

On July 26, 2026, all three major US indexes rose: Dow Jones Industrial Average gained 0.8%, S&P 500 rose 1.2%, and Nasdaq Composite rose 1.7%, nearing historical highs. Tech stocks led the rally, with giants like NVIDIA, Microsoft, and Apple gaining 2.3%, 1.9%, and 1.5% respectively. Market sentiment turned optimistic ahead of the Fed's next meeting, despite inflation still above target, as strong earnings and AI demand reshaped investor risk appetite.

Tech Giants' Earnings Beat Expectations, AI Industry Chain Fully Engaged

In the latest earnings season, tech giants posted impressive results. Chipmakers like Intel and AMD saw revenue growth over 20% YoY, driven by data center and AI accelerator demand. Google's parent Alphabet saw cloud revenue growth rebound to 30%, and advertising revenue grew due to AI tool efficiency. Microsoft Azure cloud growth reached 25%, with AI-related revenue contribution exceeding 15% for the first time. These figures show AI commercialization accelerating across infrastructure and applications.

Notably, despite concerns about high valuations, earnings growth is absorbing the premium. The Nasdaq 100 forward P/E is about 28x, slightly above historical median, but tech sector earnings growth is expected above 15%, supporting valuations. Goldman Sachs analysts noted that AI-related investment as a share of tech capital expenditure has risen from 20% in 2024 to 35% in 2026, becoming a clear growth driver.

Fed Policy Expectations Fine-Tuned, Market Bets on 'Wait and See'

The Fed will hold its monetary policy meeting July 29-30. The federal funds rate remains at 5.25%-5.50%, and the market expects no change. However, inflation has been sticky; June core PCE rose 3.2% YoY, above the Fed's 2% target. Atlanta Fed President Bostic hinted that if the labor market remains strong, another rate hike before year-end is possible.

CME FedWatch shows the probability of a 25bp rate cut before December fell from 60% a month ago to 45%. Rate path uncertainty fuels sector rotation: defensive sectors like utilities and healthcare are under pressure, while tech stocks strengthen. This reflects investors' 'embrace high growth, ignore macro volatility' mindset—as long as long-term AI trends remain, short-term rate disruptions create buying opportunities.

Semiconductor Giants Spark M&A Wave, Industry Concentration Rises

On July 25, semiconductor equipment leader Applied Materials announced a $12 billion acquisition of part of software company Synopsys to create an end-to-end AI solution for chip design. This is another major tech deal after Broadcom's acquisition of VMware in 2025. Analysts believe the semiconductor chain is shifting from 'decentralized innovation' to 'collaborative integration,' with giants possessing front-end design and back-end manufacturing gaining larger shares. Memory makers like Micron and Samsung jointly launched new HBM4 memory, as AI server demand for high-bandwidth memory grows exponentially.

This trend has a knock-on effect on A-share semiconductor stocks. Foundries like SMIC and Hua Hong benefit from overseas order spillovers, while equipment makers like NAURA and AMEC gain attention due to domestic substitution logic. However, be wary of volatility transmission from US stocks to A-shares, especially if the Fed turns hawkish, as high-valuation tech stocks may face correction.

Capital Flows: Institutions Increase AI Holdings, Retail Investors Flock to ETFs

Bank of America Merrill Lynch's July fund manager survey showed the net proportion overweight tech stocks rose 8pp to 42%, a new high since 2024. Meanwhile, retail investors continue to pour into AI-themed ETFs, with net inflows of $16 billion through July 25, and ARK Innovation (ARKK) saw its highest weekly inflow in three months. This 'institutional and retail resonance' has historically been short-lived, but current industry fundamentals are stronger.

On the other hand, hedge funds are starting to position in 'AI application layer' companies like Oracle and Salesforce, expecting application adoption to surge after infrastructure investment. For example, Salesforce's Einstein AI assistant has boosted client sales efficiency by 30%, with subscription revenue growth returning to 15%. These companies have relatively reasonable valuations (P/E 25-30x) and strong growth certainty.

H2 Investment Strategy: Focus on Earnings Validation, Diversify Risks

Looking ahead to H2, US tech stocks still have upside potential, but volatility may increase. Investors should focus on three aspects:

• Earnings season validation: August marks the tail end of US earnings season; watch corporate guidance. If AI-related orders continue to beat expectations, market confidence will strengthen; if demand slows, beware of a Davis double-kill.
• Fed path: Any signal on rate cut timing will cause volatility. Recommend locking in some profits and allocating to short-term Treasury bonds or money market funds to hedge interest rate risk.
• Sector rotation: After tech stock highs, consider catch-up opportunities in cyclical sectors like industrials and materials, especially sub-sectors like power equipment and cooling systems benefiting from AI factory construction.

For A-share investors, they can indirectly participate in US tech stocks via China Internet ETFs or Nasdaq-tracking QDII funds, while also noting valuation troughs in HK tech stocks. However, control positions to avoid over-concentration in a single track.

Overall, the US stock market trend in H2 2026 still revolves around AI and digital economy, with Fed policy pace and geopolitics as disturbance factors. Investors should stay flexible, balancing industry trends and macro constraints.