Google and Caterpillar become "big winners"; AI and earnings reports outweigh war, making April's US stock market the strongest since 2020.
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U.S. stocks ended April strongly, with the appeal of corporate earnings and AI narratives overshadowing the shadows of war, inflation, and interest rates.
On Thursday, the S&P 500 index rose 1% to a record high. For the entire month, the S&P 500 jumped 10% in April, marking its best monthly performance since November 2020.
Strong earnings from Alphabet and Caterpillar became the core driving force of the market.
Alphabet's stock price soared nearly 10%, with its single-day market cap increase setting a company record and becoming the second-largest single-day market cap increase in U.S. corporate history. Caterpillar, driven by explosive demand for AI data centers, saw its share price surge 9% to a record closing high.
Ray Baraldi, CEO of 2/13 Strategic Partners, said:
The market has been testing the gap between AI enthusiasm and reality. What you saw before was euphoria about AI’s potential, now we are experiencing a strict scrutiny of reality—investors ultimately want to see tangible results.
Google: Backlog of orders provides "proof of return", AI investment recognized by the market
The highlight of Alphabet this quarter was highly concentrated on Google Cloud business.
According to financial results, cloud business revenue grew 63% year-on-year to $20 billion, with operating margin reaching 33%, far exceeding market expectations. More critically, the backlog of Google Cloud orders nearly doubled from last quarter to $46.2 billion, with AI demand and TPU chip sales as primary drivers.
The company raised its annual capital expenditure guidance from the previous $175–185 billion to $180–190 billion, and hinted that capital expenditure in 2027 would be "substantially increased." Jake Behan, Director of Capital Markets at Direxion, pointed out:
Alphabet's investment is recognized by the market because there is a $460 billion backlog supporting it.
CFO Anat Ashkenazi said during the call, the internal and external demand for the company’s AI computing resources "is at an unprecedented level".
CEO Sundar Pichai added, If we could meet all demand, cloud business revenue could be even higher. Pichai said in the call:
Our AI investments and full-stack layout are illuminating every corner of our business.
The advertising business also remains robust. Search ad revenue grew 19% year-on-year to $60.4 billion, YouTube ad revenue grew 11% to nearly $10 billion, and subscriptions, platforms, and devices business grew 19% to $12.4 billion.
As of Thursday's close, Alphabet's market cap reached $4.65 trillion, second only to Nvidia among the seven U.S. tech giants.
Caterpillar: Driven by AI data centers, the veteran industrial giant becomes a market favorite
Caterpillar's strong performance provided another narrative path for benefiting from AI investment.
The earnings showed Caterpillar's revenue grew 22% year-on-year to $17.4 billion, far exceeding S&P Capital IQ’s forecast of $16.4 billion, with construction industry revenue up 38% and power & energy segment revenue up 22%.
CEO Joe Creed said on the earnings call that most of the growth in power & energy segment comes from the data center development boom and the demand for electricity to support cloud computing and generative AI. Caterpillar’s engines and turbines provide primary backup power and electrical infrastructure for these facilities.
Order backlog data is even more intuitive. Creed said the company’s current backlog stands at $63 billion, up 79% from a year ago, and he stated:
Customers are submitting longer-term orders, with some orders already scheduled into 2028.
Regarding expansion plans, Creed said they would "launch immediately".
Data shows, Caterpillar is the second-largest weighted component in the Dow Jones Industrial Average, accounting for over 10% of the index weight. Its 10% surge on Thursday directly contributed 790 points to the Dow’s gain that day.
According to Bloomberg, Bank of America analyst Michael Feniger wrote in a report that, although the Iran war poses a short-term risk to Caterpillar, if it spurs a new wave of energy project construction, "it could be a growth opportunity for 2027".
War and the Federal Reserve take a back seat, AI narrative dominates market sentiment
Despite rising geopolitical risks in April, the stock market showed obvious insensitivity.
WallstreetCN mentioned that Trump would receive a briefing on new military options for Iran, crude oil prices rose briefly but then fell, with U.S. near-term crude futures dropping to $105 per barrel.
David Waddell, Chief Investment Strategist at Waddell and Associates, said:
Iran doesn't seem interested in sitting at the negotiation table, and Trump may overturn that table.
On the macro data front, the Fed's preferred inflation indicator shows that after the war pushed up energy prices, inflation pressure increased further in March.
First quarter GDP growth was 2%, below economists’ expectations, and consumer spending slowed. The 10-year U.S. treasury yield closed at 4.389%. Waddell believes:
The market always tests the new Fed chair, but at least one symbolic rate cut is expected by year end.
Waddell summed up, The tailwind from the global wave of industrial construction "is enough to offset the difficulties absorbing rising energy costs", "the strength of this rally is surprising".
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